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)
“The risk for a woman who considers her helpless children her “job” is that the children’s growth toward self-sufficiency may be experienced as a refutation of the mother’s indispensability, and she may unconsciously sabotage their growth as a result.”
—Letty Cottin Pogrebin (20th century)