Groundlearn / Glossary / Unsystematic risk
Unsystematic risk
Also called idiosyncratic risk, specific risk. A CFA and FRM term, defined in plain English with the distinction examiners test.
What it means
Risk specific to one company or sector, which diversification can remove.
The exam angle
Not rewarded, because it can be eliminated for free. Bearing it is a choice, not a risk premium.
Where it appears in the syllabus
- Portfolio ConstructionCFA Level I · exam weight 8–12% · Risk and return, the CAPM, IPS construction, behavioural biases.
- Foundations of Risk ManagementFRM Part I · exam weight 20% · Risk taxonomy, governance, CAPM, multifactor models, financial disasters.
Related terms
- BetaThe sensitivity of an asset’s return to the market’s return — its share of systematic risk.
- Capital asset pricing modelA model stating that an asset’s expected return equals the risk-free rate plus beta times the equity risk premium.
- DiversificationCombining imperfectly correlated assets so that portfolio risk falls below the weighted average of the individual risks.
- Sharpe ratioExcess return over the risk-free rate, per unit of total risk.
- Systematic riskRisk affecting the whole market, which cannot be diversified away.
- Value at RiskThe loss that will not be exceeded over a stated horizon with a stated confidence — for example, a 1-day 99% VaR of…
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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