Systematic vs. Unsystematic Risk (Exam Classification) vs Systematic Risk (Market Risk)
How the NASAA outline sorts the named types of risk. Risk affecting the whole market that diversification cannot remove.
What is the difference between Systematic vs. Unsystematic Risk (Exam Classification) and Systematic Risk (Market Risk)?
The general concept is in the Risk & Return unit. This card is the exam's specific sorting of named risks.
| Systematic vs. Unsystematic Risk (Exam Classification) | Systematic Risk (Market Risk) | |
|---|---|---|
| In one line | How the NASAA outline sorts the named types of risk. | Risk affecting the whole market that diversification cannot remove. |
| Example | Many textbooks call sector risk diversifiable. On the exam, follow the outline: it lists sector risk as systematic. | In March 2020 nearly every equity sector fell together; owning 60 stocks did not help. |
| Unit | Economics & Financial Reporting | Risk & Return |
| Series 65 | Section 1: Economics & Business | Section 1: Economics & Business |
What is Systematic vs. Unsystematic Risk (Exam Classification)?
The June 2023 outline gives interest rate risk, sector risk, and geopolitical risk as examples of systematic risk, and credit risk, legal/regulatory risk, financial risk, and issuer-specific risk as examples of unsystematic risk. Market risk and purchasing power (inflation) risk are also systematic. Financial risk is the risk created by a company's use of leverage.
More on Systematic vs. Unsystematic Risk (Exam Classification)
What is Systematic Risk (Market Risk)?
Recessions, rate shocks, wars, pandemics - risks that hit every asset at once. Because it cannot be diversified away, it is the risk investors are compensated for bearing. Beta measures exposure to it.