Define risk, and distinguish between systematic risk and
unsystematic risk.
What factors are responsible for the two types of risk?
In its basic form, risk comprises
components of probability, variance, volatility and uncertainty. Probability is
a statistical estimate of a variance in an expected outcome. Volatility relates
to the degrees of change that historically have occurred in outcomes over time and
uncertainty is the possibility that an unexpected outcome might occur.
Systematic risks are exposures of a share portfolio to changes in
the environment that have the effect of impacting the majority of shares listed
on a stock exchange. For example, changes in interest rates, exchange rates or
economic activity.
Unsystematic
risk relates to exposures that specifically affect the share price of a
particular corporation. For example, loss of key personnel or systems, or a
downgrade of performance forecasts
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