Systematic risk
Certified Financial Planner glossary · Certified Financial Planner
Definition
Market-wide risk that cannot be diversified away and for which investors are compensated.
Systematic risk in plain English
A recession, rate shock, or market-wide panic hits nearly every stock at once, no matter how carefully you pick names. Systematic risk is that market-wide risk that cannot be diversified away and for which investors are compensated. Diversification does not erase beta. If a stem claims you can diversify away market risk the same way you diversify away single-stock risk, that answer confuses systematic with unsystematic risk. Compensation attaches to nondiversifiable market exposure, not to noise you could have spread away.
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