What is the difference between systematic risk and unsystematic risk?

Systematic risk and unsystematic risk are two distinct types of risks that investors face. Systematic risk, also known as market risk, is the inherent risk that affects the entire market or a broad segment of the market. This type of risk is unavoidable and cannot be mitigated through diversification. Examples include economic recessions, political instability, and changes in interest rates. On the other hand, unsystematic risk, also known as specific or idiosyncratic risk, is associated with a particular company or industry. This risk can be reduced or eliminated through diversification, as it does not affect the entire market. Examples include a company's management decisions, product recalls, or regulatory changes specific to an industry. In summary, systematic risk impacts the entire market and cannot be diversified away, while unsystematic risk is specific to individual companies or industries and can be mitigated through diversification.