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:
“Self-esteem and self-contempt have specific odors; they can be smelled.”
—Eric Hoffer (1902–1983)
“Do you want me to tell you something really subversive? Love is everything it’s cracked up to be. That’s why people are so cynical about it.... It really is worth fighting for, being brave for, risking everything for. And the trouble is, if you don’t risk anything, you risk even more.”
—Erica Jong (b. 1942)