Unsystematic risk
In one sentenceRisk specific to one company or a particular sector, such as losing a major customer, a factory breakdown, or a wrong management decision, which can be reduced by diversifying investments.
Simply put
It is also called specific risk. What hits one company may not hit others, so diversification reduces its effect on the portfolio as a whole.
Business owners face it too: relying on a single supplier or a single customer raises this type of risk, and spreading suppliers and customers reduces it.
Example
A listed food company's main production line broke down after a fire, so its stock fell while the sector's stocks remained stable. An investor who held it within a diversified portfolio was affected by only a small part of the loss.
Don't confuse it with
Systematic riskIt hits the whole market, so diversification does not remove it.