Question

1. What is the systematic risk of a stock? Give an example.

Answer 1

Systematic risk is considered to be a risk which affects the whole market and not just a particular stock or industry. It is a risk which is beyond the control and which would effect whole market.

It is considered to be non diversifiable risk as no diversification would reduce the amount of loss as the whole market would have been effected so no diversification is possible in systematic risk.

Example would be inflation, fluctuations in currencies, war , recessions etc