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Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

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Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

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Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

Writer's pictureSummit Puri
Jul 293 min read

Systematic and Unsystematic Risk Factors

Globalization

In our interconnected global world, computer dysfunction can greatly disrupt our daily lives. Our lives are connected through nearly every device we use, and even more so through voice commands or gestures!

 

In a previous post, I mentioned that using voice commands for timers or hand gestures to control the TV has become the norm for many at home. Even our fridges can automatically order more groceries when we’re low. So, what happens when the computers we interact with daily and depend on stop working?

 

Real Life Example

We saw this in real time recently. A global IT outage on July 19, 2024, caused by a faulty update from cybersecurity firm CrowdStrike, resulted in widespread disruptions across various sectors. The outage impacted Microsoft platforms, particularly its Azure cloud computing service, which is used by a vast number of businesses and organizations worldwide, including 95% of Fortune 500 companies. The disruptions affected airlines, banks, media outlets, government agencies, and healthcare facilities, among many others. The outage led to grounded flights, delays in financial transactions, and the cancellation of appointments.

 

When we can’t conduct our normal activities/work while that ‘blue screen of death’ is still visible, what do we do? In the hospital setting, we had pop-up command centers, backup on backup, and downtime procedures in place that would jump into action, allowing for minimal disruption.

 

This was the vendor’s view. What about the consumer’s view? If this impact puts a hold on your investments or prevents you from accessing your bank accounts for an important transaction, it could place you in a precarious situation. In most cases, investors or consumers don’t have a backup plan for this type of impact, hence the risk.

 

Systematic Risk

In investing talk, Systematic risk is the inherent risk that an investor takes by investing in the market. This could be the impact of the failure of a global security update, internet failure, NYSE crash, or power disruption, along with any factor that can be linked to the broad market over any individual investment. Systematic risk, in a nutshell, is the risk of investing in the market as a whole. This can be internal or externally linked. Another name for systematic risk, and likely easier to remember, is Market risk. Calculating Systematic risk can be done by taking the portfolio standard deviation and subtracting the portfolio unsystematic risk (wait, that’s a number?!- Yup, Read on!).

 

Unsystematic Risk

On the other hand, unsystematic risk is the risk associated with the individual security or investment. This is the risk that most investors think of when putting their money in the market. “How will a security/investment perform?” is always a great question, but remember, risk is defined as a range. It is always +/- (Plus or minus) a value. Though it’s almost comical to consider positive risk, we almost inherently consider risk negative. If you’d like a further description of this, read this article I wrote: It’s a Risky Business, or is it?. 

 

Unsystematic risk can be calculated by taking the Standard deviation of the portfolio minus the portfolio beta.

 

High Yield take away – the elusive alpha, is found within the unsystematic risk (we’ll discuss this in-depth on a later day)

 

‘Smart beta’ strategies – leverage ‘styles or factors’ to find alpha in the unsystematic risk (more on this as well, in a future post) of a portfolio

 

Total Risk

As mentioned in the post linked above, total risk is the summation of systematic risk and unsystematic risk. It is also the portfolio's standard deviation.

 

Total risk = standard deviation of the portfolio (all subsequent equations are assumed at the portfolio)

 

  • Standard deviation = Unsystematic risk + Systematic risk

  • Systematic risk = Standard deviation - unsystematic risk

  • Unsystematic risk = Standard Deviation – systematic risk

 

Why is it so complicated?

Well, it is risky business, isn’t it?!

 

All great puns aside, understanding risk is complicated. The varying degree of risk tolerance, ability to take risk, along with the understanding of risk makes for a story with many twists and turns. This is precisely why I always recommend having a teacher at your side. Our team of financial advisors at Whitaker Myers Wealth Managers knows and understands all aspects of risk. Even more so, our team will walk with you through each phase of your journey to align your investments with your risk tolerance at that phase. Schedule time to chat with one of our advisors to learn more!

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Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

​

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

​

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

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