Risk Factors

Unsystematic Risk


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.


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. 


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.


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.

Test your knowledge...

1. How much can you expect to earn from a cash investment?

Copyright © 2021 Methodology

That's wrong - try again!