riskienSystemaattinen

Systematic risk, often referred to as market risk, is the portion of investment risk that affects the entire market or broad market segments and cannot be eliminated through diversification. In Finnish contexts, the term is generally translated as systemaattinen riski. It arises from macroeconomic factors and events such as changes in interest rates, inflation, economic growth, political instability, or natural disasters, which influence almost all securities to varying degrees.

Because it affects nearly all assets, systematic risk is distinct from unsystematic risk, which is specific to individual companies or industries and can be reduced by holding a diversified portfolio. The magnitude of systematic risk for a given asset is commonly expressed by its beta, which measures sensitivity to broad market returns. In the Capital Asset Pricing Model, the expected return of an asset is a function of the risk-free rate plus a beta times the market risk premium.

Management of systematic risk cannot be achieved through diversification alone, but investors can adjust exposure via strategic asset allocation, hedging with derivatives, or by using instruments designed to offset market movements. International diversification and shifts across asset classes can alter exposure to systematic factors, though not remove them completely. Timing and macro hedging are common tools, albeit imperfect.

Criticisms and alternatives: relying on beta and CAPM assumes stable relationships and may oversimplify risk. Factor models such as the Fama-French three- or five-factor models identify additional systematic components like size, value, and momentum. During crises, correlations across assets rise, challenging diversification strategies.

History: The concept emerged with modern portfolio theory in the 1950s and 1960s; Sharpe, Lintner, and Mossin contributed to formalization. The term is widely used in finance, risk management, and investment strategy.