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Systematic risk definition

Like its un-correlated partner specific risk, this one has many names, a regression-based calculation and a huge impact on financial risk management.

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Systematic risk is measure that quantifies volatility for a company but only the piece that is related to the Market, or factors that represent the Market, meaning it is un-correlated with the company's specific risk. It is separated from specific risk in a single-variable (Market) or multi-variable (factors) linear regression. It can be computed for any of the three timeframes: historical, expected or forecast.

Synonyms: non-diversifiable risk, market risk, common factor risk, common source risk.


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Quiz

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The residual or error term in a linear regression is required to separate specific risk from systematic risk. | True or False?

True

In a Sentence

Ted:  So systematic risk  is also called non-diversifiable, common factor and market risk?
Eve:  Yep, there's a lot of job security in risk management.

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Related Terms

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Keywords:
systematic risk
non-diversifiable risk
market risk
common factor risk
common source risk
market
regression
covariance matrix
factor model
risk modeling
stocks