Unsystematic Risk

Posted in Finance, Accounting and Economics Terms, Total Reads: 603
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Definition: Unsystematic Risk

While making an investment there lies a possibility that the actual income on the investment may be less than the expected income. This possibility is referred to as Risk.


Unsystematic risk is the kind of risk that is inherent to the type of company that one is investing in. it is also called the diversifiable risk or the residual risk. An easy way to deal with unsystematic risk is to make your investment diversified.


Example:

A natural disaster like fire, a strike etc. is classified as unsystematic risk. It is unlikely that a fire would affect all the companies at the same time. Hence an investor having a diversified portfolio is able to mitigate the associated risk of investing in a single company.


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