Which risk is directly associated with specific investments rather than the market as a whole?

The correct answer pertains to a type of risk that is unique to individual investments or specific asset classes, differentiating it from risks that are associated with the overall market. Non-systematic risk, also known as specific or idiosyncratic risk, arises from factors such as company management decisions, industry factors, or regional economic conditions. These risks can be mitigated through diversification, as they predominantly affect individual assets rather than the entire market or economy.

In contrast, systematic risk, often referred to as market risk, affects a significant portion of the market simultaneously and cannot be eliminated through diversification. This includes broad economic factors like inflation rates, interest rates, and geopolitical events.

While asset-level risk may seem relevant, it is not a commonly recognized term within finance. Systematic and market risks are associated with price changes in the securities market as a whole, reinforcing that non-systematic risk is the accurate term for risks tied to specific investments. Thus, non-systematic risk represents the variability in asset-specific returns that is not connected to broader market movements.