systematic vs unsystematic risk
Hello everyone,
I have a quick question with regards to systematic vs unsystematic risk. I understand that unsystematic risk is risk that can be diversified away. However, I'm having a hard time figuring out if a specific risk is systematic or unsystematic.
For example: (quoted from the schweser CFA book)
"the high risk of our biotech stock, however, is primarily from firm-specific factors, so its unsystematic risk is high. since market factors such as economic growth rates have little to do with the eventual outcome for this stock, systematic risk is a small proportion of the total risk of the stock."
since most of the risk is from firm specific factors, i'm assuming this to be inherent risk in the company (related to business model, etc) and not from broader economic factors.. thus it cannot be diversified away.. as a result, systematic risk should be high not low as stated in the book.
thanks for any help you can offer. |