Risk
Systematic risk
Also called Market risk or Undiversifiable risk
Risk that affects the whole market and cannot be removed by holding more things.
How it works
Recessions, rate shocks, wars and pandemics move nearly everything at once. No amount of diversification within an asset class escapes them.
Because it cannot be diversified away, systematic risk is the risk investors are compensated for. That compensation is the equity risk premium.
Related terms
- Unsystematic riskRisk unique to one company or industry, which diversification can largely remove.
- BetaHow much an investment tends to move when the market moves, with 1.0 meaning it moves in line.
- Equity risk premiumThe extra return investors expect from shares over risk-free government debt, for accepting the risk.
- DiversificationSpreading money across things that do not move together, so no single failure can decide your outcome.
Mentioned in
More in Risk
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.