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Published On: Mon, Feb 25th, 2013

Unsystematic Risk

The term Unsystematic Risk refers to the trading risk that is associated with an individual company or industry sector.

Because traders or portfolio managers are able to choose from the entire investment universe within their specific trading product, it is thought that Unsystematic Risk can be avoided by proper asset selection.  In other words, a trader can minimize or even eliminate the Unsystematic risk in his portfolio by picking stocks that carry a low risk of loss.  The choosing of individual assets to trade is what fund managers and traders do to add value to their clients.  While they are paid to and often do minimize Unsystematic Risk (often referred to as Paying for Alpha) it is impossible for a trader or asset manager to eliminate Systematic Risk (i.e. System-wide Risk) which is the risk of the entire market suffering a downturn.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

 

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