What type of risk affects a specific business rather than the market as a whole?

Non-systematic risk, also known as specific risk or idiosyncratic risk, refers to the risk that is unique to a particular company or industry. This type of risk can arise from factors such as management decisions, product recalls, or regulatory changes that specifically impact a single business or sector. Since non-systematic risk is not correlated with market risks, it can be reduced through diversification in a portfolio; by holding a variety of investments, the impact of a negative event affecting one specific investment can be mitigated by others that are performing well.

In contrast, systematic risk affects the entire market or a large segment of it, such as changes in economic policy, interest rates, or natural disasters that can impact all businesses in a significant way. Morbidity and mortality are terms used primarily in the context of health and life insurance, representing health-related risk (morbidity) and death-related risk (mortality), but they do not specifically describe risks that affect particular businesses.

Understanding the distinction between these types of risks is essential for effective risk management and investment strategies, particularly when assessing the potential volatility and specific risks associated with individual investments.