Unsystematic risk
Unsystematic risk is firm-specific or industry-specific risk that can be diversified away by holding a broad portfolio. Because it is avoidable at no cost, markets pay no premium for bearing it.
FrameworkCAPM
See it move
Loading infographic...
A single stock's total risk splits into roughly 35% systematic risk, driven by economy-wide forces, and 65% unsystematic risk, driven by firm-specific events. Holding a portfolio of 25 to 30 securities diversifies away most of the unsystematic slice, leaving only systematic risk, the component CAPM actually prices.
Where it fits
TopicRisk, Return & the CAPMCoreSubjectCorporate FinanceCore