Risk can be classified into several distinct classes. The most important include the following:
Pure and speculative risk
Diversifiable risk and nondiversifiable risk
Pure risk is defined as a situation in which there are only the possibilities of loss or no loss. The only possible outcomes are adverse (loss) and neutral (no loss). Examples of pure risks include premature death, job-related accidents, catastrophic medical expenses, and damage to property from fire, lightning, flood, or earthquake.
In contrast, speculative risk is defined as a situation in which either profit or loss is possible. For example, if you purchase 100 shares of common stock, you would ...