Systematic Risk

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.

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Systematic risk. Systematic risk, also called market risk, is risk that's characteristic of an entire market, a specific asset class, or a portfolio invested in that asset class.

It's the opposite of the risk posed by individual securities in a class or portfolio, also known as nonsystematic risk. The predictable impact that rising interest rates have on the prices of previously issued bonds is one example of systematic risk.

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Systematic Risk

What Does Systematic Risk Mean?

The risk inherent in the entire market or an entire market segment. Also known as undiversifiable risk or market risk.

Investopedia explains Systematic Risk

Interest rates, recessions, and wars are types of systematic risk because they affect the entire market and cannot be avoided even with diversification. Systematic risk affects a broad range of securities, whereas unsystematic risk affects a very specific group of securities or an individual security. Systematic risk can be mitigated only by being hedged. But even a portfolio of well-diversified assets cannot protect against all risk.

Related Terms:
• Capital Asset Pricing Model—CAPM
• Diversification
• Market Economy
• Standard Deviation
• Unsystematic Risk