Market Risk

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What is 'Market Risk'

Market risk is the possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets. Market risk, also called "systematic risk," cannot be eliminated through diversification, though it can be hedged against. The risk that a major natural disaster will cause a decline in the market as a whole is an example of market risk. Other sources of market risk include recessions, political turmoil, changes in interest rates and terrorist attacks.

BREAKING DOWN 'Market Risk'

The two major categories of investment risk are market risk and specific risk. Specific risk, also called "unsystematic risk," is tied directly to the performance of a particular security and can be protected against through investment diversification. One example of unsystematic risk is that a company, whose stock you own will declare bankruptcy, thus making your stock worthless.

RELATED TERMS
  1. Company Risk

    The financial uncertainty faced by an investor who holds securities ...
  2. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  3. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. ...
  4. Specific Risk

    Risk that affects a very small number of assets. Specific risk, ...
  5. Price Risk

    The risk of a decline in the value of a security or a portfolio. ...
  6. Idiosyncratic Risk

    Risk that is specific to an asset or a small group of assets. ...
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RELATED FAQS
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    Learn about market risk and the four primary sources of market risk including equity, interest rate, foreign exchange and ... Read Answer >>
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    Learn about how to identify examples of unsystematic risk, and discover how many can be traced to entrepreneurial error or ... Read Answer >>
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