finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

, a specific risk is a

risk In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...

that affects a very small number of

assets In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...

. This is sometimes referred to as "

unsystematic risk In finance and economics, systematic risk (in economics often called aggregate risk or undiversifiable risk) is vulnerability to events which affect aggregate outcomes such as broad market returns, total economy-wide resource holdings, or aggrega ...

". 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. An example would be news that is specific to either one

stock Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...

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 In finance and economics, systematic risk (in economics often called aggregate risk or undiversifiable risk) is vulnerability to events which affect aggregate outcomes such as broad market returns, total economy-wide resource holdings, or aggrega ...

market risk Market risk is the risk of losses in positions arising from movements in market variables like prices and volatility. There is no unique classification as each classification may refer to different aspects of market risk. Nevertheless, the m ...

, specific risk can be diversified away. In fact, most unsystematic risk is removed by holding a portfolio of about twenty-five to thirty securities.

References

Financial risk {{Finance-stub