Market Risk

Investors are exposed to market risk a.k.a. systematic risk at all times. It is the potential risk that investors bear on their investment holdings from negative movements in an entire market (not just the specific security or securities the investors hold). Market risk derives from any number of regulatory, political, economic, monetary or environmental factors. Portfolio diversification and hedging can cushion the negative impacts of market risk but generally speaking it’s a risk that no investor is immune from. Securities that have a beta of one have equivalent market risk to the market itself.

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