Unsystematic risk relates to the uncertainty associated with individual companies or sectors, not affecting the entire stock market or economy.

There are four main types of unsystematic risk.

Business Risk involves the operational risks within a company.

For instance, if the publicly-traded apparel company, FashionCo, faces a significant problem in its supply chain, its stock prices drop. This risk affects FashionCo but not the entire apparel industry.

Financial Risk is related to a company's financial structure and decisions.

FashionCo takes on excessive debt to fund an expansion that is not generating expected profits. This would negatively impact its stock value.

Sector Risk is specific to a company's industry.

Increased tax regulations impact pricing in the apparel industry, and FashionCo, which operates in this sector, might see its stocks decline.

Management Risk is associated with a company's leadership decisions.

FashionCo's management makes controversial decisions like poor labor practices, which can lead to a decline in the company's stock price.

Understanding unsystematic risks is important for investors, as the risk reduces by diversifying their portfolios across different companies and industries.