Risk from broad market factors that affects many assets and cannot be diversified away. It is the risk that earns a premium.
Where you will meet it
Systematic risk comes up in 12 learning outcome notes across the FRM syllabus.
A few of them:
Commodity Forwards and Futures FRM Part I · Financial markets and products
“A commodity's required expected return, written μ here, is set by its systematic risk, which is its beta against the market portfolio.”
The Building Blocks of Risk Management FRM Part I · Foundations of risk management
“Under the CAPM, and in a frictionless efficient-market framework generally, only systematic risk is priced, since it cannot be diversified away.”
External and Internal Credit Ratings FRM Part I · Valuation and risk models
“Structured-finance tranches rated AAA before 2007 suffered large losses when house prices fell, because the ratings did not capture correlation and systematic risk.”
Capital Structure in Banks FRM Part II · Credit risk measurement and management
“Parameters are themselves uncertain, which adds systematic risk that diversification cannot remove.”
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