Definition of Nonsystematic Risk

Non systematic risk is an investment risk that is specific to an issuer or an industry. Events that impact one industry will not necessarily impact another unrelated industry. For example a weak economy may have a significant impact on the auto manufactures, but no impact on companies in the drug industry. Non systematic risk may also be the result of a problem at one particular company. Should a large computer chip maker lose a big contract the price of that company’s stock may decline significantly as a result. However, this will have no impact on other companies. As it is a company specific issue.

Applying "Nonsystematic Risk" to Securities Exams:

Often times the value of an investment will fluctuate with the market as a whole. If the market is generally declining the value of an investment may decline simply because the market as a whole is falling. This is known as systematic risk. Other times an investment may loss value as a result of problems with a specific company or industry. When the Government sued the tobacco companies or when a company faces a major issue these would be examples of non systematic risk. An investor may diversify out of non systematic risk.

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