Aspect Systematic Risk Unsystematic Risk
Scope Affects the entire market Affects specific companies/sectors
Diversification Cannot be diversified Can be reduced through diversification
Examples Inflation, interest rates Management inefficiency, product issues
Predictability Linked to macroeconomic factors Linked to microeconomic factors
Managing Systematic and Unsystematic Risks
Strategies for Systematic Risk
1.
Asset Allocation:
2.
1. Spread investments across different asset classes such as stocks, bonds, and commodities.
A balanced portfolio reduces the impact of market-wide fluctuations