Difference Between Systematic Risk And Unsystematic Risk
Difference Between Systematic Risk And Unsystematic Risk
Major differences between systematic and unsystematic risk are described as follows:
1. Meaning
Systematic Risk: It is a part of total market risk which arises due to external factors like economic factors, political factors and sociological factors.
Unsystematic Risk: It refers to the part of risk which is associated and arises due to the internal factors within the company.
2. Nature
Systematic Risk: It is non-diversifiable risk, so it cannot be reduced or controlled by the management.
Unsystematic Risk: It is diversifiable risk, so it can be reduced or controlled by the management.
3.Factors
Systematic Risk: It occurs due to the external factors.
Unsystematic Risk: It occurs due to internal or organizational factors.
4. Affects
Systematic Risk: It affects the whole market and the economy.
Unsystematic Risk: It affects only a specific industry or business organization.
5. Measurement
Systematic Risk: It is measured by the help of security’s Beta. Beta is the indicator of systematic risk.
Unsystematic Risk: There is no such tool to indicate or measure this type of risk. It is calculated by deducting systematic risk from the total market risk.
6. Sources
Systematic Risk: Market risk, interest rate risk, purchasing power risks etc are the major sources of this type of risk.
Unsystematic Risk: Business risk, financial risk, insolvency risk are the major sources of unsystematic risk.
7. Examples
Systematic Risk: Change in interest rate, inflation, price changes, high unemployment rate etc are the common examples of this types of risk.
Unsystematic Risk: High labor turnover, high operational cost, strike in the company etc. are the examples of unsystematic risk.
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