Systematic risk, also called market risk, affects investments across the economy and cannot be eliminated through diversification. Unsystematic risk, or company-specific risk, includes events such as disappointing earnings, failed products, or management problems. Diversification can reduce unsystematic risk, so CAPM assumes investors are compensated for taking systematic risk rather than risks they can diversify away.
verifiedCite
While every effort has been made to follow citation style rules, there may be some discrepancies.
Please refer to the appropriate style manual or other sources if you have any questions.
Select Citation Style