Systematic risk
In one sentenceRisk that affects the whole market or economy, such as slowing growth, rising financing costs, and oil price swings, and that cannot be eliminated by diversifying investments.
Simply put
It is also called market risk. When the economy slows, most stocks are affected together, so owning ten companies instead of one does not help.
A stock's sensitivity to it is measured by its beta: a beta of 1 means the stock moves with the market, and greater than 1 means it moves more than the market.
Worked example
A company's stock has a beta of 1.5, and the market index fell 10% because of a general economic slowdown (hypothetical figures for illustration).
Market change−10%
Stock beta1.5
Expected fall in the stock = 1.5 × 10%15%
Formula: Expected change in the stock ≈ beta × market change
Don't confuse it with
Unsystematic riskSpecific to one company or sector, and reduced by diversification.