Unsystematic (idiosyncratic) risk
Principles of Finance glossary · Risk, Return & Portfolio Theory
Definition
Asset-specific risk that can be diversified away.
Unsystematic (idiosyncratic) risk in plain English
This is the risk that's unique to one specific company and has nothing to do with the economy as a whole, like a factory fire, a lawsuit, or a CEO scandal. The magic is that this kind of risk mostly cancels out if you own many different stocks, because it's bad luck for you if one flops, but another one has good luck the same week. Think of a whole class's test scores: any single student might have an off day, but the class average barely moves because individual flukes wash out. Because you can erase it for free just by diversifying, the market won't pay you extra for taking it.
Also called: idiosyncratic
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