The tendency of security prices to move together is one source of systematic risk.

Question

Quizplus · Accepted Answer

This is because when there are external factors affecting the overall market, such as changes in interest rates, economic conditions, or geopolitical events, all securities may be affected in a similar way, leading to a correlation in their price movements. This type of risk cannot be diversified away through portfolio diversification and affects all investments in the market, hence why it is called systematic or non-diversifiable risk.

The Tendency of Security Prices to Move Together Is One