Which risk type is out of the control of individual investors and impacts all securities equally?

Market risk, often referred to as systematic risk, is the type of risk that is beyond the control of individual investors and affects all securities in the market. This form of risk is associated with factors that influence the entire economy or financial markets, such as changes in interest rates, inflation, political instability, or natural disasters.

Market risk cannot be mitigated through diversification because it impacts the entire market, meaning that when the market experiences a downturn, most securities will also show negative performance, regardless of their individual characteristics or the sectors to which they belong. This characteristic of market risk distinguishes it from other types of risks which can often be managed through strategic investment choices.

In contrast, specific risk, operational risk, and credit risk are more localized or related to specific entities and can often be mitigated through diversification or other management strategies. This understanding emphasizes why market risk is a fundamental consideration for all investors in the financial markets.