Also called market risk
Systematic risk
Risk affecting the whole market at once. It cannot be diversified away, which is precisely why investors are paid a premium for bearing it.
Updated 2026-09-05
Systematic risk is risk that hits the whole market at once: rates, inflation, war, recession. No amount of diversification removes it, because there is nothing to diversify into that is unaffected.
This is the risk investors are actually paid for. The equity risk premium is the price of bearing it, and beta scales that price to how much of it a particular stock carries. That is the entire logic of the capital asset pricing model, and it explains why Angie's discount rate cares about market correlation rather than about how risky the business feels.
See also
- Non-systematic risk — Risk specific to one company or industry. It can be diversified away, so the market does not pay you for carrying it.
- Beta — How much the stock moves relative to the S&P 500. A beta of 1.0 moves with the market, higher is more volatile, and higher volatility raises the discount rate.
- Equity risk premium — The extra return investors demand for holding stocks instead of Treasuries. Beta scales it up or down for one particular company.
- Diversification — Holding enough uncorrelated positions that no single one can ruin you. It removes company-specific risk and cannot touch market risk.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
