Systematic risk Vs unsystematic risk. Explained with Examples. Essentials of Investments. CFA Exam

in this video, I discuss systematic risk Vs unsystematic risk. Systematic risk is the probability of a loss associated with the entire market or the segment. Whereas, Unsystematic risk is associated with a specific industry, segment, or security.


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What Is Systematic Risk?
Systematic risk refers to the risk inherent to the entire market or market segment. Systematic risk, also known as “undiversifiable risk,” “volatility” or “market risk,” affects the overall market, not just a particular stock or industry. This type of risk is both unpredictable and impossible to completely avoid. It cannot be mitigated through diversification, only through hedging or by using the correct asset allocation strategy.
Systematic Risk Vs. Unsystematic Risk
While systematic risk can be thought of as the probability of a loss that is associated with the entire market or a segment thereof, unsystematic risk refers to the probability of a loss within a specific industry or security.