Via investopedia.com Article
“Systematic risk is the risk inherent to the entire market or market segment. Systematic risk, also known as ‘undiversifiable risk,’ ‘volatility,’ or ‘market risk,’ affects the overall market, not just a particular stock or industry. This type of risk is both unpredictable and impossible to completely avoid. It cannot be mitigated through diversification, only through hedging or by using the correct asset allocation strategy. …
Systematic risk underlies other investment risks, such as industry risk. If an investor has placed too much emphasis on cybersecurity stocks, for example, she/he can diversify this by investing in a range of stocks in other sectors, such as healthcare and infrastructure. Systematic risk, however, incorporates interest rate changes, inflation, recessions and wars, among other major changes. Shifts in these domains have the ability to affect the entire market and cannot be mitigated by changing around positions within a portfolio of public equities.
To help manage systematic risk, investors should ensure that their portfolios include a variety of asset classes, such as fixed income and cash, each of which will react differently in the event of a major systemic change. An increase in interest rates, for example, will make some new issue bonds more valuable, while causing some company stocks to decrease in price as investors perceive executive teams to be cutting back on spending. In the event of an interest rate rise, ensuring a portfolio incorporates ample income-generating securities will mitigate the loss of value in some equities.”