30.03.2023 - 06:29

What is the difference between market risk and idiosyncratic risk?

Question:

What is the difference between market risk and idiosyncratic risk?

Answers (1)
  • Dillon
    April 15, 2023 в 14:34
    Market risk refers to the risk of an investment losing value due to general market movements, such as changes in interest rates, economic conditions, or geopolitical events. Market risk affects all investments in a particular market or asset class to varying degrees, and it cannot be diversified away. Idiosyncratic risk, on the other hand, is the risk that is specific to an individual investment or company. It is not related to broader market conditions and can be diversified away by investing in a well-diversified portfolio of stocks. To sum up, market risk is the risk associated with market-wide factors, while idiosyncratic risk is the risk associated with an individual security or company.
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