Question

When the CEO of Apple, Steve Jobs, passed away on October 4, 2011, the stock of Apple fell by close to 10% while S&P 500 went up by a little over 2%. The beta of Apple is positive (that is if the market goes up, then Apple stock should also go up). This is an example of:

Answer 1

Answer: C. Idiosyncratic Risk

Explanation:

Idiosyncratic risk which is also referred to as UNSYSTEMATIC RISK is the inherent risk involved when a specific asset is invested in.

The risk affects that specific asset and not the rest of the portfolio or the market. Hence it is the OPPOSITE of SYSTEMATIC RISK as Systematic risk affects all companies.

Idiosyncratic risks are more rooted in individual companies (or individual investments). Investors can mitigate idiosyncratic risks by diversifying their investment portfolios.

A Stock being dependant on a keep figure falls under this type of risk as it is unique to a certain company.

Steve Jobs was considered the Visionary behind Apple and so when he was ill and finally died, Apple Stock kept going down but not by too much.

Bless his soul.