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Unsystematic Risk

29 April, 2015 - 15:03

Unsystematic risk is also called idiosyncratic risk, or diversifiable risk. It represents the risk of a security that is unrelated to the market in general. Unsystematic risk can be reduced by holding a diversified portfolio. A diversified portfolio eliminates the likelihood of one isolated event causing a large decrease in portfolio value.


As you can see from the above image, as the number of stocks in a portfolio increase, the amount of unsystematic risk approaches zero. However, it is impossible to remove systematic risk, as it concerns the economy in general.