Risk Factors

Unsystematic Risk

1

Unsystematic risk is the risk that is unique to a specific stock or industry. Unsystematic risk is also known as diversifiable risk, as it can be minimised through diversification of investments.

2

Examples of unsystematic risk include the introduction of a new competitor, the introduction of new regulation, a change in management, or the recall of a faulty product. 

3

It is impossible for investors to keep track of all unsystematic risks, as they can often be unexpected. For example, it is hard for investors to predict a product recall as they usually have no insider information.

4

There are 5 types of unsystematic risk: business risk (i.e. failed projects), financial risk (i.e. bad investments), operational risk (i.e. poor machinery), strategic risk (i.e. low innovation) and legal risk.

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