What is Company Specific Risk?
Risk that is unique to a company which could negatively affect its stock price
Examples:
- Negative Headline News – A scandal that creates reputational damage for the company
- Litigation – A lawsuit against a company due to defective or harmful products
- Cybersecurity – A data breach in which customer information has been stolen or compromised
- Intellectual Property – A company’s failure to protect itself by securing necessary patents or allowing them to expire
- Managerial Issues – The sudden departure of a key executive or poor business decisions such as taking on too much debt
Why Diversify?
Diversification by owning several companies in your portfolio reduces the impact of Company Specific Risk