Sometime, you may confuse two financial risks. One Systemic risk and other is systematic risk. Yes, both are the risk which happens in financial market but both are the totally different like difference between day and night.
Following are its differences :
1. Definition :
Systemic Risk
I have already explained systemic risk. Systemic risk means the risk of sink whole financial system due to weakness of a single unit of the system.
Systematic Risk
Systematic Risk is the risk of whole market due to weakness of market structure. We can say also that it is the risk which happens due to the weakness of entire structure of anything. For example, God had made the earth. God has to keep its balance. There large number of population affect the earth with their activities. So, some part of earth quakes. No one can make a building who tolerates the earthquake because this happens biggest weakness of population and balance system of God. So, earth quake is the systematic risk.
2. Explanation :
Systemic Risk
In real example, we see the systemic risk in financial market. Subprime Mortgage Crisis! Yes, an event of providing large quantity of loans to home holders became the trigger of financial crisis in USA.
Systematic Risk
When whole economic structure is weak, systematic risk happens. This weakness may be of fiscal policy, monetary policy, international trading rules, war, recession of economy. All these are major factors.
3. Measurement
Systemic Risk
Value at Risk (VaR), marginal expected shortfall (MES) are used for measuring systemic risk.The marginal expected shortfall measures how group i's risk taking adds to the bank's overall risk. In words, MES can be
measured by estimating group i's losses when the rm as a whole is doing poorly.
Systematic Risk
We can measure systematic risk with beta.
a) beta < or equal to 1.0
It means there is less systematic risk in portfolio.
b) beta > 1.0
It means more systematic risk in portfolio.
{Remember :Portfolio is the group of different companies' stock in which we have invested our money}
Related : Risk Management of Banks
Following are its differences :
1. Definition :
Systemic Risk
I have already explained systemic risk. Systemic risk means the risk of sink whole financial system due to weakness of a single unit of the system.
Systematic Risk
Systematic Risk is the risk of whole market due to weakness of market structure. We can say also that it is the risk which happens due to the weakness of entire structure of anything. For example, God had made the earth. God has to keep its balance. There large number of population affect the earth with their activities. So, some part of earth quakes. No one can make a building who tolerates the earthquake because this happens biggest weakness of population and balance system of God. So, earth quake is the systematic risk.
2. Explanation :
Systemic Risk
In real example, we see the systemic risk in financial market. Subprime Mortgage Crisis! Yes, an event of providing large quantity of loans to home holders became the trigger of financial crisis in USA.
Systematic Risk
When whole economic structure is weak, systematic risk happens. This weakness may be of fiscal policy, monetary policy, international trading rules, war, recession of economy. All these are major factors.
3. Measurement
Systemic Risk
Value at Risk (VaR), marginal expected shortfall (MES) are used for measuring systemic risk.The marginal expected shortfall measures how group i's risk taking adds to the bank's overall risk. In words, MES can be
measured by estimating group i's losses when the rm as a whole is doing poorly.
Systematic Risk
We can measure systematic risk with beta.
a) beta < or equal to 1.0
It means there is less systematic risk in portfolio.
b) beta > 1.0
It means more systematic risk in portfolio.
{Remember :Portfolio is the group of different companies' stock in which we have invested our money}
Related : Risk Management of Banks
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