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Investment
Unsystematic Risk
Risk that is specific to one company or industry and can be reduced through diversification.
Unsystematic risk (also called specific or idiosyncratic risk) is different from systematic risk (market-wide). Diversification almost eliminates it. Professional portfolios focus on reducing unsystematic risk while managing systematic risk through asset allocation.
It's the risk that only affects one house on the street — not the whole neighbourhood.
Real world: A scandal at one airline (bad safety news) hurts only that airline's stock. It does not affect all airlines equally. This is unsystematic risk and can be minimised by owning many different companies.
💡 Unsystematic risk is the risk you can actually control by not putting all your eggs in one basket.