Overview
Market risk is the possibility that an individual or other entity will experience losses due to factors that affect the overall performance of investments in thefinancial market. Market risk and spesific risk (unsystematic) make up the two major categories of investment risk. Market risk, also called "systematic risk," cannot be eliminated through diversification, though it can be hedged in other ways. Sources of market risk include recssions, political turmoil, changes in interest rates, natural disasters, and terrorist attacks. Systematic, or market risk, tends to influence the entire market at the same time.
This can be contrasted with unsystematic risk, which is unique to a specific company or industry. Also known as “nonsystematic risk,” "specific risk," "diversifiable risk" or "residual risk," in the context of an investment portfolio, unsystematic risk can be reduced through diversification.