idiosyncratic risk: what is it

[Kevin]

What is idiosyncratic risk in investing? How is it different from market risk, and can it be reduced through diversification?

 

[Rick_Grimes]

Idiosyncratic risk is the risk specific to a single company or asset, not the overall market, such as a company’s management issues, product failure, or a bad earnings report affecting just that stock. For example, if a company I invested in suddenly loses a key contract, its stock might drop even if the market is doing fine; that’s idiosyncratic risk, and it can usually be reduced by diversifying your investments.