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 was asking for something specific and perfect for my city,
Whereupon lo! upsprang the aboriginal name.
Now I see what there is in a name, a word, liquid, sane, unruly,
musical, self-sufficient,
I see that the word of my city is that word from of old,
Because I see that word nested in nests of water-bays, superb,
Rich, hemm’d thick all around with sailships and steamships, an
island sixteen miles long, solid-founded,”
—Walt Whitman (1819–1892)
“It cannot in the opinion of His Majesty’s Government be classified as slavery in the extreme acceptance of the word without some risk of terminological inexactitude.”
—Winston Churchill (1874–1965)