Glossary

In portfolio theory, market risk is created by events that affect all or most asset markets. Whereas firm-specific risk (which affects one or a group of firms) can be countered with a strategy of diversification, market risk cannot be diversified away. For this reason, market risk is also known as undiversifiable risk. The coronavirus pandemic, which affected the entire world in 2020, is a perfect example of ‘undiversifiable’ market risk.