Two Basic Types of Investment Risk
a. Systemcatic risk
b. Unsystematic risk
b. Systematic risk, also called market risk, is the risk faced by all firms. Changes in the economy as a whole, such as the business cycle, affect all players in the market.
1) For this reason, systematic risk is sometimes referred to as undiversifiable risk. Since all investment securities are affected, this risk cannot be offset through portfolio diversification.
c. Unsystematic risk, also called company risk, is the risk inherent in a particular investment security. This type of risk is determined by the issuer's industry, products, customer loyalty, degree of leverage, management competence, etc.