Difference between systematic and unsystematic risk
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Systematic risk, also known as market risk, is uncertainty inherent to the entire market and consists of day-to-day stock price fluctuations. It includes interest, market, and inflation risks and is uncontrollable, arising from macroeconomic factors that affect many securities. Unsystematic risk is uncertainty from a specific company or industry and includes business and financial risks, which can be reduced through diversification. It is controllable and arises from micro-economic factors affecting individual securities.
Difference between systematic and unsystematic risk
- 3. Systematic risk, also known as "market risk" or "un-diversifiable risk", is the uncertainty inherent to the entire market or entire market segment. Also referred to as volatility, systematic risk consists of the day-to-day fluctuations in a stock's price. Types of Systematic Risk: Interest risk Market risk Inflation risk
- 4. Unsystematic risk, also known as "specific risk," "diversifiable risk" or "residual risk," is the type of uncertainty that comes with the company or industry you invest in. Unsystematic risk can be reduced through diversification Types of Unsystematic Risk: Business risk Financial risk
- 5. Systematic risk means the possibility of loss associated with the whole market or market segment. Unsystematic risk means risk associated with a particular industry or security. Systematic risk is uncontrollable whereas the unsystematic risk is controllable. Systematic risk arises due to macroeconomic factors. On the other hand, the unsystematic risk arises due to the micro-economic factors
- 6. Systematic risk affects a large number of securities in the market. Conversely, unsystematic risk affects securities of a particular company. Systematic risk can be eliminated through several ways like hedging, asset allocation and diversification. As opposed to unsystematic risk that can be eliminated through portfolio diversification Systematic risk is divided into three categories, i.e. Interest risk, market risk and purchasing power risk. Unlike unsystematic risk, which is divided into two broad category business risk and financial risk.