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.
Famous quotes containing the words specific and/or risk:
“I recognize in [my readers] a specific form and individual property, which our predecessors called Pantagruelism, by means of which they never take anything the wrong way that they know to stem from good, honest and loyal hearts.”
—François Rabelais (1494–1553)
“Every day, in this mostly male world, you have to figure out, “Do I get this by charming somebody? By being strong? Or by totally allowing my aggression out?” You’ve got to risk failure. The minute you want to keep power—you’ve become subservient, somebody who does work you don’t believe in.”
—Paula Weinstein (b. 1945)