Mastering Company-Specific Risk: Unsystematic Risk Management
Unsystematic risk, also called specific risk or idiosyncratic risk, is that risk associated with a particular company, industry, or sector. As opposed to systematic risk, unsystematic risk is confined only to certain areas or entities, and can thus be reduced with diversification.
For instance, pharmaceutical stocks may experience downtrends due to regulatory roadblocks or the failure of drugs coming to the market. Nonetheless, this usually doesn’t have much influence on any other company across various unrelated sectors such as tech and energy.