What type of risk does "systematic risk" represent?

Systematic risk refers to the risk inherent to the entire market or market segment, which is influenced by factors such as economic changes, political events, or significant global occurrences. This type of risk cannot be eliminated through diversification because it affects all securities in the market. For instance, during an economic recession, most industries may be impacted concurrently, leading to a decline in the overall stock market, regardless of how diversified an individual's investment portfolio may be.

Understanding systematic risk is crucial for investors and financial professionals, as it helps them to comprehend the broader market movements and economic indicators that could affect their investments as a whole. It emphasizes the importance of strategic asset allocation and risk management in the face of market-wide downturns or fluctuations.