What is defined as the risk inherent to the entire market?

Systematic risk is defined as the risk inherent to the entire market or a particular segment of the market, affecting all investments in that market. This type of risk is influenced by factors such as macroeconomic events, interest rate changes, political instability, or natural disasters, which cannot be mitigated through diversification. Since systematic risk impacts a large number of assets at once, it is also referred to as market risk.

Contrarily, specific risk, also known as unsystematic risk, pertains to individual securities or assets and can be mitigated through diversification. Operational risk relates to failures in internal processes, systems, or external events, which again does not encompass the broader market risk. Thus, systematic risk is essential for understanding market behaviors and investment strategies, making it a critical concept in finance and investment analysis.