Systematic Risk

Market-wide risk that affects all securities and cannot be eliminated through diversification, also called market risk or non-diversifiable risk. Examples include recessions, interest rate changes, geopolitical crises, and pandemics. Systematic risk is measured by beta, which quantifies how much a stock moves relative to the broader market. The capital asset pricing model (CAPM) holds that investors should only be compensated for bearing systematic risk, since unsystematic (company-specific) risk can be diversified away.