systematic risk vs. systemic risk

are these synonymous?

If you invest your money in the stock market you run al kinds of risks, one of which is systematic risk. This is when the whole market turns against you and you lose money, even though you selected some really good stocks. You also face another, not necessarily related, risk called systemic risk, in which something horrible occurs with the financial system…anything that might cripple the functioning of the system as a whole, fraud, lack of liquidity, technical bugs, etc., which we came close to in 2008. These risks occur not just in the stock market, but in most other markets.


they are not synonymous…systemic risk is the risk all market participants run if the system itself fails (US govt defaults on all debt, counterparties collapse and can’t pay up, information stops flowing, etc). Systematic risk is when economic conditions decline and brings all good things down with the bad.

both are market risk, essentially, but they are not synonymous as systemic risk is more closely related to the risks posed by market participants/FIs and systematic risk more closely related to the risk from large catastrophic events…my mistake.

systematic risk = undiversifiable risk unsystemac risk = "can be diversified (aka large “n”) away I hope this helps you all clear this up. For example, if you own all stocks in the commodity industry, and the commodity industry collapses, then you lose all… However if you only had a small % in the commodity industry you would only lose a small amount, and hopefully something “uncorrelated” would offset your losses w/ gains b/c it performs good when commodities performs bad, etc etc etc…