Systematic risk is the risk that affects a security or portfolio due to its relationship with the market. Systematic risk is also called market risk, aggregate risk, or undiversifiable risk.
Systematic risk can’t be reduced through portfolio diversification. Since this risk is associated with overall market sentiment rather than performance of few stocks. Systematic risk results from forces which can’t be controlled by a firm.
Systematic risk is measured with beta coefficient. It represents the security’s volatility relative to that of an average security. Say for example if beta = 1 means that security is of average risk (or exactly in sync with market). If beta = 2 means that security is of double the risky as that of average risky stock. If beta = 0.8 means, it is a less risky stock compared to average stock.
Mohan Bhupathiraju
Mohan Bhupathiraju is a co-founder & editor at LastBull.com. Handled multiple projects in BFSI for few of the Forbes top 100 companies. He works in IT industry in the US. Presently working on start up Ideas in Finance & Technology niches.
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