Published On:Tuesday, 3 January 2012
Posted by Muhammad Atif Saeed
Systematic Risk
The risk inherent to the entire market or entire market segment.
Also known as "un-diversifiable risk" or "market risk."
Also known as "un-diversifiable risk" or "market risk."
Explanation:
Interest rates, recession and wars all represent sources of systematic risk because they affect the entire market and cannot be avoided through diversification. Whereas this type of risk affects a broad range of securities, unsystematic risk affects a very specific group of securities or an individual security. Systematic risk can be mitigated only by being hedged.
Even a portfolio of well-diversified assets cannot escape all risk.
Even a portfolio of well-diversified assets cannot escape all risk.
