Unsystematic risk

Examples include a product recall, a factory accident or the loss of a key customer, where the event is not simply a general market movement. Combining investments whose specific outcomes do not move together can reduce the portfolio effect of such events. Diversification is imperfect if holdings share the same concentrated exposures. In the standard CAPM framework, diversified investors are not rewarded with an additional required return for bearing avoidable specific risk. This does not mean managers can ignore operational risks or that a particular shareholder is actually well diversified.