Jolyn

You got the part about the firm specific factors being the inherent risk in the company. But this infers that unsystematic risk is high, not the systematic risk.

Here's the explanation:

-systematic risk is the risk that all firms have in the market therefore even if you have a portfolio of company stocks that are negatively correlated, you cannot diversify away this risk.

-unsystematic risk is the opposite in that it is the risk that is specific to the firm (specific risk=unsystematic risk) so that if you invest in firm stocks that are negatively correlated, you diversify away the risk.

Then, for the example you quoted from Schweser, the reasoning is that the Biotech stock's risk can almost all be attributed to how the firm does rather than how the market or economy does. Since this risk is specific to how the firm will perform, this type of risk is firm-specific=unsystematic risk. So, the unsystematic risk is high. In contrast, even if the market is sh!tty, if the firm does well, then the firm's stock will invariably rise, which means the market risk (or systematic risk) has little to do with Biotech's stock price, thus the systematic risk is low.

Hope that helps!