Unsystematic Risk
Company- or sector-specific risk that can be reduced through diversification across uncorrelated assets.
Unsystematic risk (idiosyncratic or specific risk) arises from factors unique to a single company or sector: an earnings miss, a CEO scandal, supply-chain disruption, or a regulatory fine. Unlike systematic risk, it can be largely eliminated by holding a diversified portfolio of uncorrelated assets.
The more concentrated a portfolio, the greater its exposure to unsystematic risk. A single-stock trader has maximum unsystematic risk; a broad-market index fund has near zero.