Unsystematic Risk

Unsystematic risk also known as specific risk, diversifiable risk or residual risk, is the risk which is specific to a particular industry, sector or company. This type of risk is avoidable or controllable by its bearer. Some of the unsystematic risks include: inefficiency of the management, flaws in the business model, liquidity crunch in the business, changes in the capital structure etc. Specific to trading, to avoid unsystematic risk investors construct diversified portfolios in order to diversify the risk over different class of assets.