systematic risk

Systematic Risk

The risk inherent to the entire market or entire market segment. Also known as "un-diversifiable risk" or "market risk."

Notes:

Interest rates, recession and wars all represent sources of systematic risk because they will affect the entire market and cannot be avoided through diversification. Whereas this type of risk affects a broad range of securities, unsystematic risk affects a very specific group of securities or an individual security. Systematic risk can be mitigated only by being hedged.

Even a portfolio of well diversified assets cannot escape all risk.

See also: Diversification, Market Risk, Portfolio, Risk, Unsystematic Risk

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Systematic risk

Also called undiversifiable risk or market risk.

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systematic risk

Risk caused by factors that affect the prices of virtually all securities, although in different proportions. Examples include changes in interest rates and consumer prices. Although it is not possible to eliminate systematic risk through diversification, it is possible to reduce it by acquiring securities (for example, those of utilities and many blue chips) that have histories of relatively slowly changing prices. Also called market risk, nondiversifiable risk. Compare unsystematic risk. See also beta.