What is the residual risk?

residual risk is the concept in economics. It has meanings both in the general economy and in the financial sector. In principle, it applies to an unknown risk: the risk that remains when other risks are taken into account. In finance, the risk of risk, which is more specific for individual stocks than for the product of market conditions. Many other names, including unsystematic risk, unsystematic risk, specific risk, diversifiable risk and unknown risk, have financial use of this term.

In non -financial situations, the residual risk is unknown. For example, if the company has to provide large delivery, then there is some probability that something will disrupt delivery, which will cost the company the price of goods. The overall risk that applies to the situation is called inherent risk. The company then takes steps to reduce risk: Update the package process to avoid being used, hire additional drivers to turn off and avoid IGUE fat, or redirect the delivery underÉl safer roads. An unforeseen risk that society cannot explain, such as an unexpected blizzard that closes the road, is a residual risk & Emdash; It is any danger that is not included in the risk assessment.

In finance, the residual risk is the share of shares as prices are checked for general market movement. The idea is that the overall risk of shares consists of two factors: the rise and falls of the economy as a whole and fluctuations caused by the act of individual companies. Market risk or systematic risk may be separated by accepting measures to ensure risk such as trading on the futures market. Once market risks are counted, residues only the risk that is specific to stock and cannot be provided.

Financial residual risk, unlike the risk of non -financial sectors, can be posted through the portfolias portfolias that give it the name "diversifiable risksKO ". Investors are often advised to diversify their portfolios because diversification reduces residual risk. Shares do not move perfectly and investors can use these differences in motion. Risk cancellation means that the investor can combine assets to achieve a portfolio with the same expected return as a lower risk asset.