What is the difference between systematic and non-systematic risk? What are some examples of each?

Expert Solution

Systematic Risk : The Systematic risk refers to the risk that affects the overall market and these type of risks can not be diversified by allocating the money in different sectors and also it is not possible to avoid these type of risk in a complete manner. The timing of these risk can not be predicted therefore, it is impossible to plan pre-emptively for these risk . The exmaples of systematic risk includes Interest rate, inflation, Change in Taxation policy, Health emergencies ( For Example: COVID-19) .

Unsystematic risk : Unsystematic risk refers to the risk that affects a particular sector of the industry or the company and these types of risk can be mitigated by diverifying the portfolio means investing money in different sectors. These type of risk can be predicted but not entirely. The example of Unsystematic risk includes New Competitor in the Market, Change in Internal (Company) Policies, Strikes etc.

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