Systematic risk principle

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Systematic risk principle

Only the systematic portion of risk matters in large, well-diversified portfolios. Thus, expected returns must be related only to systematic risks.

Systematic Risk Principle

A theory stating that unsystemic risks are irrelevant in properly diversified portfolios. According to this principle, only systemic risks affect the expected return on such a portfolio, because the process of diversification eliminates the risk attached to any particular company, and only the systemic risks endemic to the wider economy may affect the portfolio.