Market Risk

Market risk, also known as systematic risk, is the potential for an investor to experience losses due to changes in the overall market conditions.It affects all securities in the market and cannot be eliminated through diversification. Common sources of market risk include economic recessions, political instability, changes in interest rates, and natural disasters. Investors often use hedging strategies or asset allocation to mitigate market risk.

Example

An economic recession leads to a broad decline in stock prices across all industries, illustrating market risk that affects all investors, regardless of their specific holdings.