Systematic risk
Systematic risk is market-wide risk affecting all assets, which cannot be removed by diversification. Only this risk, measured by beta, earns a return premium — unlike firm-specific unsystematic risk.
FrameworkCAPM
See it move
A recession or an interest-rate shock moves nearly every asset at once — that is systematic risk, and no amount of diversification removes it, which is why investors earn a return premium for bearing it, measured by beta. A factory fire or a CEO's departure hits one firm alone; spread across a large enough portfolio, that unsystematic risk averages out and earns no extra expected return.
Check yourself
An investor holds a well-diversified portfolio of 50 shares. A regulatory ruling specific to one company forces it to recall a product, and its share price falls 30%. What type of risk does this event represent, and what is its likely effect on the portfolio?