Market Risk

Market risk, also known as systematic risk, is a possibility that a trader or investor can incur losses due to factors that are not under his control. These risks are common to each and every investor who invests in the same type of market space. The causes of market risks include recession, change in interest rate, terrorist attacks, or political turmoil.

The intensity of market risks can be reduced to a certain extent through diversification into alternative asset classes that are not correlated with the market. This is different from diversification of assets within the market. For example, Diversifying investments in gold (commodity market) in your portfolio will reduce the intensity of stock market risk, in the event of political unrest in the country.