Posted in Finance, Accounting and Economics Terms, Total Reads: 447
Definition: Specific Risk
Specific Risk is the risk specific to a small number of assets. Thus specific risk may be defined as the risk of occurrence of an event which would affect a particular stock or asset or a group of asset. However, this risk is specific to a particular asset and hence can be diversified, thus is opposite to systematic risk or market risk which is not diversifiable. Thus the expected rate of returns are calculated without considering specific risk as it is considered that specific risk is diversifiable.
For example sudden rise in price of silicon will only affect the computer manufacturing companies or similar companies which use silicon as their raw material. Hence this news will be specific risk for a pool of companies and not the whole market and hence can be diversified by investing in some other stocks.