What is one characteristic of systematic risk?

Systematic risk, also known as market risk, refers to the inherent risk that affects the entire market or a significant segment of it. This type of risk arises from factors that impact all companies and investments, such as economic changes, political events, interest rate fluctuations, and natural disasters.

The characteristic that systematic risk cannot usually be avoided is essential to understanding its nature. Unlike specific risks, which can be mitigated or eliminated through diversification—by holding a variety of investments to offset potential losses—systematic risk is intrinsic to the entire market. Even the most diversified portfolio will be subject to market movements that affect all securities.

Because systematic risk is related to overall market dynamics rather than specific companies or sectors, it cannot be completely mitigated through investment strategies. This makes it a fundamental concept in finance and investing, highlighting the limitations of diversification strategies in protecting against market-wide fluctuations.

The other options imply that systematic risk is avoidable, readily predictable, or limited to certain types of investments, which misunderstand the fundamental principles of risk in financial markets.