In finance, what does "systematic risk" refer to?

Systematic risk refers to the risk inherent to the entire market or a segment of the market. It encompasses factors that affect the overall market environment, such as economic changes, political events, natural disasters, and changes in interest rates. Unlike specific risks that affect only a single company or industry, systematic risk is unmanageable and cannot be diversified away through portfolio diversification. This means that all investments can be affected by systematic risk, making it a critical concept for investors to understand in terms of overall market performance.

Understanding systematic risk is essential for making informed investment decisions, as it illustrates how broader economic and market dynamics can impact investment returns.