Financial theory categorizes equity market risks into two primary classifications: systematic risk and unsystematic risk. Systematic risk, or market risk, encompasses macro-level economic factors—such as inflation, interest rate adjustments, recessions, and political crises—that affect the entire financial market collectively and cannot be diversified away. Unsystematic risk, or specific risk, relates to unique hazards impacting a single company or industry sector, which can be successfully mitigated through portfolio diversification.