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.