Systematic Risk

Systematic risk - A systematic risk is also called a market risk or an un-diversifiable risk. This risk applies to a whole class of assets or liabilities and entire portfolios because of the global effect it has on the entire market. Even if they include diversified risks (the mixture of different kinds of securities) they may not be protected. However if the market decline is not global and some areas are still open then having diversified risks can cushion the blow. The practice of hedging (reducing the impact of negative events) can mitigate the negative affects upon a systematic risk portfolio. Hedge funds can be set up to protect against large losses. However, hedge funds are not available to every investor and therefore these investors may rely on short selling and other means of trying to protect their interests.