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)
“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)