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What is Idiosyncratic Risk?

Definition of Idiosyncratic Risk

Idiosyncratic risk is the unsystematic risk or risk that is uncorrelated to the overall market risk that has a negative effect on stock value; for example, an event that negatively affects an asset of one company, such as the closure of a major plant or distribution channel due to a natural disaster. However the severity of idiosyncratic risk can be somewhat mitigated, at an individual investor level, by diversifying one's portfolio, so as to accommodate for the certain fluctuations in share value.
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