The threat of systematic risk is always present, even for the investors that are great at portfolio risk analysis. When you are talking about a trader, they will always be aware of systematic risk and will look for new ways to hedge it.
But what is systematic risk? This is the risk that the whole financial markets will crash, much like the recession in 2008. It can be caused by a number of reasons such as interest rate hikes, a subprime crisis or a country defaulting on its debt. The threat of systematic risk is very real in the modern market with much of Europe in a crisis.
So, how do we hedge out systematic risk and make it less of a threat? For starters, you won’t be able to wipe it out completely. When a market crashes all investments will be sold, apart from flight of safety investments, and even these aren’t always safe. But there are ways of lowering risk. In US, the USD represents the economy for the country. Reducing the exposure to the US economy you can ultimately reduce the systematic risk. You can do this by evaluating the stocks.
By using portfolio management investment you can change the stocks you own. For every market you’re long, you should try to gain a shorter position. This will give you an advantage when the market sees problems and the value of the USD changes.
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