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:
“The more specific idea of evolution now reached is—a change from an indefinite, incoherent homogeneity to a definite, coherent heterogeneity, accompanying the dissipation of motion and integration of matter.”
—Herbert Spencer (1820–1903)
“If the only new thing we have to offer is an improved version of the past, then today can only be inferior to yesterday. Hypnotised by images of the past, we risk losing all capacity for creative change.”
—Robert Hewison (b. 1943)