The world of fixed income, similarly, contains a host of systematic risks. For example, whether one owns corporate bonds or government bonds, owners of these bonds are all subject to interest rate risk; that is, the risk that rates will go up, regardless of the level of diversification of the actual
portfolio of bonds. Similar examples can be found in any asset class and frequently also across asset classes. Any economically valid grouping of instruments, in other words, can be said to share one or more common systematic risk factors. An investor who traffics in any of those instruments, then, should be aware of this risk factor and should be either making intentional
bets on it or eliminating his exposure.
The world of fixed income, similarly, contains a host of systematic risks. For example, whether one owns corporate bonds or government bonds, owners of these bonds are all subject to interest rate risk; that is, the risk that rates will go up, regardless of the level of diversification of the actualportfolio of bonds. Similar examples can be found in any asset class and frequently also across asset classes. Any economically valid grouping of instruments, in other words, can be said to share one or more common systematic risk factors. An investor who traffics in any of those instruments, then, should be aware of this risk factor and should be either making intentionalbets on it or eliminating his exposure.
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