Distinguish between the following: Systematic Risk and Unsystematic Risk

Difference between Systematic risk and Unsystematic Risk S. No. Basis Systematic Risk Unsystematic Risk 1. Meaning Systematic risk is the probability of a loss associated with the entire market of the segment. Unsystematic risk is associated with a specific industry, segment or security. 2. Nature It is uncontrollable in nature, since large scale and multiple factors are involved. Unsystematic Risks is caused due to internal factors which can be controlled or reduced on a relatively short span of time. 3. Impact This risk affects a large number of securities in the market due to widespread impact such as interest rate decreases by the apex bank. This risk will impact the stock/ securities of a particular firm or sector e.g. strike caused by the workers of a cement industry. 4. Techniques of Control This risk can be substantially controlled through techniques like hedging and Asset allocation. This risk can be eliminated through diversification of portfolio. 5. Categories This risk is divided in to three categories i.e Interest rate risk, Purchasing power risk and Market risk. This risk is bifurcated into two broad categories namely business risk and financial risk.