What Is Systematic Risk?

Systematic risk affects the whole market, rather than a specific stock, company, or industry. It's also known as undiversifiable risk, volatility risk, or market risk. It's unpredictable and impossible to completely avoid.

Understanding Systematic Risk

Systematic risk is both unpredictable and impossible to completely avoid. It can't be mitigated through diversification, only through hedging or by using the correct 澳洲幸运5官方开奖结果体彩网:asset allocation strategy.

Systematic risk underlies other investment risks such as industry risk. It's possible to diversify by investing in a range of stocks in other sectors such as healthcare and infrastructure if an investor has placed too much emphasis on cybersecurity stocks, Systematic risk incorporates interest rate changes, inflation, recessions, and wars, however. Shifts in these domains can affect the entire market and can't be mitigated by changing positions within a portfolio of public equities.

Investors should ensure that their portfolios include a variety of 澳洲幸运5官方开奖结果体彩网:asset classes to help manage systematic risk. These might include fixed income, cash, and real estate, each of which will react differently in the event of a major systematic change. An increase in 澳洲幸运5官方开奖结果体彩网:interest rates will make some new-issue bonds more valuable while causing some company stocks to decrease in price as investors perceive executive teamℱs to be cutting back on spending.

Systematic Risk vs. Unsystematic Risk

Unsystematic risk is the opposite of systematic risk. It affects a very specific group of securities or an individual security. Unsystematic risk can be mitigated through 澳洲幸运5官方开奖结果体彩网:diversification. Systematic risk can be thought of as the probability of a loss that's associated with the entire market or a segment of it but unsystematic risk refers to the probability of a loss within a specific💯 industry or security.

You can look at its beta if you want to know how much systematic risk a particular security, fund, or portfolio has. The beta measures how volatile that investment is compared to the overall market. A beta of greater than one means the investment has more systematic risk and higher 澳洲幸运5官方开奖结果体彩网:volatility than the market. Less than one means less systematic risk and lower v🐼olatility than the market. A beta equal to one meansꦆ the investment carries the same systematic risk as the market.

Systematic Risk Example

The Great Recession provides an example of systematic risk. Anyone who was invested in the market in 2008 saw the values of their investments change drastically due to this economic event. The Great Recession affected asset classes in different ways. Riskier securities that were more 澳洲幸运5官方开奖结果体彩网:leveraged were sold off in large quantities. Simpler assets such as U.S. Treasury bonds became more valuable.

The Bottom Line

Systematic risk refers to the risks inherent in an entire market or economy rather than a specific company or industry. These are known as inherent risks. Systematic risk is⛄ also known as market risk or undiversifiable risk and can arise from factors such as inflation, recessions, war, changes in interest rates, fluctuations in currency exchange rates, natural disasters, and other macroeconomic events that impact the market as a whole.

Systematic risk can be mitigated through diversification but the risk would still affect all investments in a particular market or economy. Investors must be aware of the potential for systematic risk when making investment decisions as a result. They can take steps to manage this risk through strategies such as asset allocation and 澳洲幸运5官方开奖结果体彩网:risk management.