Systematic risk

Systematic risk affects many investments together, for example through interest-rate, inflation or broad economic shocks. Diversifying across companies can reduce exposure to their individual events, but cannot eliminate the shared market component. In CAPM, beta measures an investment's sensitivity to that component and determines its risk premium. Systematic risk is different from total volatility: a highly volatile share can have considerable company-specific risk as well. The term 'market risk' is also used more broadly in treasury contexts for price, currency and interest-rate exposures, so context matters.