Which of the following best describes the term "systematic risk"?

Systematic risk, also known as market risk, refers to the potential for loss that arises from factors affecting the entire market, rather than just specific sectors or individual securities. This type of risk is tied to broader economic influences, such as changes in interest rates, inflation, political instability, or natural disasters. These influences affect all investments in the market to some extent, thus leading to fluctuations that cannot be mitigated through diversification.

While diversification can effectively reduce unsystematic risk—risk that is specific to a particular company or industry—systematic risk remains present regardless of how many different stocks or assets are included in a portfolio. This highlights the essence of systematic risk as it encompasses those macroeconomic factors that can drive down the value of a portfolio as a whole. Therefore, understanding systematic risk is crucial for investors when making decisions regarding asset allocation and risk management strategies.