Systematic risk, also known as market risk, is risk that typically effects the whole market. Such risks are known as undiversifiable as it is not possible to diversify the risk away.
It is unpredictable and impossible to avoid. Systematic risks could be political, social, environmental or economic. Examples include: rising inflation, war, protectionism, epidemics or earthquakes.
It is theoretically possible to reduce exposure to some systematic risks by investing in multiple countries, though most stock markets are linked as a result of globalisation.
Unlike unsystematic risk, systematic risk can be estimated using a measure called beta. It measures how an individual stock performs in relation to the whole market. You can find out more about beta here.
Copyright © 2021 Methodology