Specific Risk

In finance, a specific risk is a risk that affects a very small number of assets. This is sometimes referred to as "unsystematic risk". In a balanced portfolio of assets there'd be a spread between general market risk and risks specific to individual components of that portfolio. Determination of the extent of exposure to individual risks is made using models such as Treynor-Black in which the optimal share of a security is inversely proportional to the square of its specific risk.

An example would be news that is specific to either one stock or a group of companies, such as the loss of a patent or a major natural disaster affecting the company's operation.

Unlike systematic risk or market risk, specific risk can be diversified away.In fact, most unsystematic risk is removed by holding a portfolio of about twenty-five to thirty securities.


Other articles related to "specific risk, risk, risks, specific risks":

Satellite (financial) - Asset Pricing Using MPT - Systematic Risk and Specific Risk
... Specific risk is the risk associated with individual assets - within a portfolio these risks can be reduced through diversification (specific risks "cancel out") ... Specific risk is also called diversifiable, unique, unsystematic, or idiosyncratic risk ... Systematic risk (a.k.a ...

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