What does systematic risk include?

Systematic risk is a type of risk that impacts the entire market or large segments of the market, rather than affecting individual investments. This type of risk is inherent to the overall market and cannot be eliminated through diversification. Factors contributing to systematic risk include economic changes, interest rates, political instability, and global events—things that affect a wide range of assets and market segments simultaneously.

In contrast, risk factors that affect individual investments are categorized as unsystematic risk, which can potentially be mitigated through a diversified investment portfolio. Specific industries or sectors may also be subject to unique risks, which again fall under unsystematic risk.

Low volatility investments refer to the price stability of certain assets, which does not directly relate to systematic risk, as system-wide factors can still affect these investments despite their low volatility. Thus, the correct understanding of systematic risk centers around its widespread impact across the market or large segments, confirming that the option highlighting this characteristic is accurate.