Non-Systematic Risk (Unsystematic Risk)

What this video covers

• The five interchangeable terms for non-systematic risk: non-systematic, unsystematic, diversifiable, business, and company-specific risk
• Why CEO departures, product recalls, strikes, and company lawsuits are classic non-systematic risk examples while recessions and Fed rate changes are systematic
• How an industry-specific regulatory change (e.g., new environmental rules for energy companies) is non-systematic even though it sounds like policy
• The exact distinction between diversification (many securities within an asset class to cancel company-specific risk) and asset allocation (mixing broad asset classes like stocks, bonds, and cash to manage market-wide risk)
• Why holding roughly 25 to 30 well-chosen diversified stocks across sectors virtually eliminates non-systematic risk, and what risk remains in that portfolio
• Why systematic risk cannot be diversified away and can only be mitigated through hedging or asset allocation