In terms of risk assessment, what does the term 'systematic risk' exclude?

The concept of systematic risk refers to risks that affect the entire market or a broad segment of the market, rather than risks that can be attributed to individual assets or companies. This type of risk is associated with factors that are external and unavoidable, such as market fluctuations, regulatory changes, and economic downturns, which can impact all firms in the market to varying degrees.

Company-specific issues, on the other hand, are considered unsystematic risk. These are risks that are unique to a particular company or industry, such as management decisions, product recalls, or legal troubles. Unlike systematic risk, unsystematic risk can be mitigated through diversification, as it does not impact the overall market in the same way that economic or market-wide issues do.

Thus, by identifying company-specific issues as the exclusion from systematic risk, the definition highlights how systematic risks are those inherent to the market as a whole, affecting all participants within it, while unsystematic risks are localized and manageable through strategic investment decisions.