Which of the following best describes systematic risk?

Systematic risk, also known as market risk, refers to the inherent risks that affect the entire market or a significant portion of it, such as economic downturns, political instability, changes in interest rates, or natural disasters. This type of risk is not unique to a single company or industry and cannot be eliminated through diversification, as it impacts all investments to varying degrees.

Selecting the option describing systematic risk as the risk that cannot be diversified away captures its essence perfectly. Regardless of how well an investor diversifies their portfolio across different asset classes or securities, they will still be exposed to systematic risk. This is in contrast to the other types of risk, which can be mitigated through diversification strategies.

The other options reflect concepts related to unsystematic risk or specific circumstances that do not fully encompass the nature of systematic risk. For example, options that mention risk limited to specific investments or portions of the market pertain to unsystematic risk, where the consequences are confined to particular stocks or sectors. Meanwhile, risk related to personal investment decisions falls outside the broader scope of systematic risk by focusing on individual investor behavior rather than market-wide phenomena.