Knowledge Tree
systematic risk
Also known as: market risk, systematic risks, non-diversifiable risk
Facts (22)
Sources
Topic 2: The Risk and Return Trade Off in Financial Decision Making oercollective.caul.edu.au 5 days ago 9 facts
claimDiversification reduces unsystematic risk in a portfolio by including assets with low or negative correlations, though systematic risk remains.
claimSystematic risk, also known as market risk or non-diversifiable risk, is inherent to the entire market, cannot be eliminated through diversification, and includes factors such as economic recessions, interest rate changes, or geopolitical events.
claimNon-diversifiable risk, also known as systematic risk, is market-wide risk that affects all investments, such as economic recessions, interest rate changes, or political instability, and cannot be reduced through diversification.
claimThe Capital Asset Pricing Model (CAPM) links risk and return by emphasizing that only systematic risk is rewarded in the market.
claimInvestors demand a higher return to compensate for bearing systematic risk because it affects all investments and is unavoidable.
claimPortfolio risk is determined by the variance and covariance of returns among assets, and diversification reduces unsystematic risk while systematic risk remains.
claimFor an investor holding only one asset, the relevant measure of risk is Total Risk, which comprises both Systematic Risk and Unsystematic Risk.
claimEfficient portfolio management focuses on minimizing diversifiable risk while accepting and managing systematic risk, as systematic risk drives expected return.
claimFor an investor holding a diversified portfolio, the relevant measure of risk is only Systematic Risk, because Unsystematic Risk has been minimized through diversification.
Chapter 8 – Risk and Return – Fundamentals of Finance pressbooks.pub 5 facts
claimMarket risk, also known as systematic or non-diversifiable risk, is the risk that affects the entire market or economy and cannot be reduced by diversification because it impacts all securities to some extent.
claimThe Security Market Line plots beta (systematic risk) on the X-axis and expected return on the Y-axis.
claimEconomic or market risks are systematic risks that stem from overall economic conditions, affect all securities to some extent, and cannot be mitigated through diversification.
claimA product recall due to a design flaw in an iPhone is an example of firm-specific risk for Apple, as it is unique to the company and does not affect the broader economy or competitors like Samsung and Sony in the same way as systematic risks.
claimSystematic risk (market risk) is defined as risk that impacts all industries, such as a major recession, whereas unsystematic risk (firm-specific risk) is specific to individual companies or sectors.
Risk and Return Trade Off in Investing - StockGro stockgro.club Jun 27, 2024 3 facts
claimThe Capital Asset Pricing Model demonstrates that expected investment returns increase as beta (systematic risk) increases.
claimThe beta coefficient is a financial measure used to assess the systematic risk level of an individual security, mutual fund, or portfolio relative to the market or another benchmark.
formulaThe Capital Asset Pricing Model (CAPM) expresses the risk-return relationship using the formula: Expected Return = Rf + β(Rm − Rf), where Rf is the risk-free rate, β (Beta) is the measure of systematic risk, Rm is the expected market return, and (Rm − Rf) is the market risk premium.
Risk and Return Explained - Financial Edge fe.training Mar 4, 2024 3 facts
claimSystematic risk is a type of risk that affects the whole market and cannot be fully mitigated through diversification, unlike currency or stock-specific risks which can be managed.
claimSystematic risk is characterized by higher cross-asset correlation and lower market liquidity, making it unlikely for even a well-diversified portfolio to deliver positive absolute returns during periods of severe market stress.
claimEvents that can trigger systematic risk include natural disasters, geopolitical unrest (wars), global pandemics, and global recessions.
Understanding The Risk And Return Tradeoff - FasterCapital fastercapital.com 1 fact
claimSystematic risk, also known as market risk, is influenced by factors such as economic downturns, geopolitical events, and interest rate changes.
Risk-Return Tradeoff: Finance & Investments | Vaia vaia.com Sep 20, 2024 1 fact
claimThe Capital Asset Pricing Model (CAPM) provides insights into expected asset returns by considering systematic risks, which reinforces the foundations of portfolio and investment strategies in finance.