Macro Risk Categories
In a macro sense, there are two types of risk. Systematic risk, also Trade X Profit Review known as market risk is the risk associated with the overall market. An example is the overall trend of the stock market dictates a substantial part of the total return. In this case, owning stocks from different sectors does not diversify away the systematic risk of the market.
You can mitigate systematic risks by hedging your positions with non-correlated assets (much harder to do than most think) or employ good stop management techniques to preserve your capital. While stops are not part of the Modern Portfolio Theory, they have their use and should be part of your overall strategy.Changes in interest rates, recessions, and major catastrophes are examples of systematic risk as they affect the entire market. Unsystematic risk, also known as specific risk or diversifiable risk is the risk inherent in each investment. Investors can offset specific risk with proper diversification. For example, if you place all your money in a biotechnology company that has just received news that the FDA will not approve a new drug, you have encountered unsystematic or specific risk. This news would cause the share price to fall precipitously.