Specific risk

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In finance, a specific risk is a risk that affects a very small number of assets. This is sometimes referred to as "unsystematic risk". In a balanced portfolio of assets there would be a spread between general market risk and risks specific to individual components of that portfolio. Determination of the extent of exposure to individual risks is made using models such as Treynor-Black in which the optimal share of a security is inversely proportional to the square of its specific risk.^[1]

An example would be news that is specific to either one company or a group of companies, such as the loss of a patent or a major natural disaster affecting the company's operation.

Unlike systematic risk or global risk of international markets, specific risk can be diversified away. In fact, most unsystematic risk is removed by holding a portfolio of about twenty-five to thirty securities.^[2]

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