What is nondiversifiable risk also referred to as?

Nondiversifiable risk is commonly referred to as systematic risk. This type of risk affects the entire market or economy, making it impossible to eliminate through diversification of investments. Systematic risk includes factors such as economic changes, political events, and natural disasters, which can have widespread impact across various sectors or asset classes.

Investors encounter systematic risk irrespective of the particular securities they hold, as it's related to the overall market environment rather than individual asset performance. As a result, even if an investor has a well-diversified portfolio, they cannot fully mitigate the effects of systematic risk on their investments.

In contrast, unique risk pertains to risks associated with individual companies or sectors that can be reduced through diversification. Operational risk relates to potential losses caused by failed internal processes or systems, while credit risk involves the possibility of a counterparty failing to fulfill their financial obligations. These categories do not capture the broad market-wide vulnerabilities characterized by nondiversifiable risk.