The unsystematic risk of a specific security
A) is likely to be higher in an increasing market.
B) results from factors unique to the firm.
C) depends on market volatility.
D) cannot be diversified away.
E) none of these.

Question

Quizplus · Accepted Answer

Unsystematic risk is also known as company-specific risk and arises from factors that are unique to a particular company, such as management changes, product recalls, lawsuits, etc. It is not related to market conditions or overall market volatility, hence not affected by an increasing market. However, it can be diversified away by investing in a diversified portfolio of securities.

The Unsystematic Risk of a Specific Security