DEFINITION of 'Company Risk'
The financial uncertainty faced by an investor who holds securities in a specific firm. Company risk can be mitigated through diversification; by purchasing securities in additional companies and uncorrelated assets, investors can limit a portfolio's exposure to the ups and downs of a single company's performance.
Company risk is also called "specific risk," "unsystematic risk" or "diversifiable risk."
BREAKING DOWN 'Company Risk'
Systematic risk, on the other hand, refers to the uncertainties associated with investing in the broader market. It cannot be diversified away because it affects all the securities in the market. Major political and economic events such as wars and recessions are examples of events that pose systematic risk. Investors can reduce their exposure to systematic risk through hedging.
Assuming risk is an essential part of achieving investment gains, but the amount of risk undertaken can be managed and customized to each investor's time frame, required rate of return and risk tolerance.