Answer:
Differences between Systematic Risks and Unsystematic
Risks:
- Systematic Risk refers to risks that are
associated with the whole market or economy as a whole.On the other
hand: Unsystematic Risk refers to the risks that
arises on account of a specific security or a company or a
particular industry.
- Systematic Risk impacts a great number of
securities in a market while Unsystematic Risk
only impacts the securities of a specific company or a particular
industry.
- Systematic Risk is uncontrollable while
Unsystematic Risk is controllable by the specific
company or industry.
- Systematic Risk is caused by external factors
such as changes in the government policy while Unsystematic
Risk is caused by factors which are internal in nature
such as management failure.
- Systematic Risk cannot be avoided by
diversification while Unsystematic Risk can be
reduced by diversification.
Two Sources of Systematic Risk:
- Market Crash: A crash of any securities market
will adversely impact the securities being traded in the
market.Since there is no way to avoid market and this is an
external factor so it is a source of Systematic Risk.
- Inflation:Any change in the inflation will
impact the economy as a whole and hence this is a source of
systematic risk.
Two Sources of Unsystematic Risks:
- Management Failure: Failure of the management
of a company can adversely impact the performance of a company and
since this is caused by an internal factor therefore it is a source
of unsystematic risk
- Change in government regulations impacting a particular
industry:Any change in government regulations impacting a
particular industry and is a source of unsystematic risk .