Definition of Market risk:
Alternative term for systemic risk.
The risk that an investment will make a loss; an estimation of the extent of this risk.
Market risk is the possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets in which he or she is involved. Market risk, also called "systematic risk," cannot be eliminated through diversification, though it can be hedged against in other ways. Sources of market risk include recessions, political turmoil, changes in interest rates, natural disasters and terrorist attacks. Systematic, or market risk tends to influence the entire market at the same time.
This can be contrasted with unsystematic risk, which is unique to a specific company or industry. Also known as “nonsystematic risk,” "specific risk," "diversifiable risk" or "residual risk," in the context of an investment portfolio, unsystematic risk can be reduced through diversification.
How to use Market risk in a sentence?
- Because it affects the whole market, it is difficult to hedge as diversification will not help.
- Market risk may involve changes to interest rates, exchange rates, geopolitical events, or recessions.
- Market risk, or systematic risk, affects the performance of the entire market simultaneously.
Meaning of Market risk & Market risk Definition