Systematic Risk
Risk that affects the entire market or a broad asset class and cannot be eliminated through diversification.
Systematic risk (also called market risk) is the risk inherent to the entire market. Recessions, interest-rate shocks, geopolitical crises, and pandemics are systematic — every stock in a portfolio falls when the market collapses, regardless of diversification across sectors or industries.
Systematic risk can only be managed through hedging (e.g. short futures, put options on index ETFs) or by moving to cash. Beta measures a portfolio's sensitivity to systematic risk: a beta of 1.5 means the portfolio moves 1.5× the market in either direction.
Related Terms
Beta
A measure of a stock's volatility relative to the market. Beta > 1 means it moves more than the index; Beta < 1 means it moves less.
IntermediateBlack Swan
An extreme, unpredictable, high-impact event that falls outside the range of normal expectations and is rationalised as predictable only in hindsight.
IntermediateConditional Value at Risk (CVaR)
The average loss in the worst-case tail beyond the VaR threshold; it answers how bad losses are when VaR is breached, not just how often.
AdvancedCorrelation
A measure of how closely two assets move together, ranging from −1 (perfectly opposite) to +1 (perfectly in sync).
IntermediateHedging
Opening an offsetting position to reduce the net risk of an existing trade or portfolio against adverse price movements.
IntermediateTail Risk
The risk of rare, extreme outcomes in the far ends of a return distribution — events that standard models greatly underestimate.
AdvancedUnsystematic Risk
Company- or sector-specific risk that can be reduced through diversification across uncorrelated assets.
Intermediate