Create a conclusion for the paper : Introduction Canada continues to suffer systematic risk such as household debt as it "remains the top risk with 68% of respondents indicating that it poses a High Risk or Very High Risk to Canadian financial stability. However, the level of concern about Household debt is 7 percentage-points lower than last year"( Canadian Securities Administrators, 2025) according to CSA. The central question to this continuous problem is : what risks most threaten diversified investors over the short to medium term? Systematic risk is unpredictable and is the outcome of "macroeconomic events that affect the market as a whole and cannot be controlled, at least by an investor" (Chen, 2025) while Idiosyncratic risk is security specific and diversifiable (Ancheta, 2025). I argue that systematic risk (not idiosyncratic risk) is the dominant short to medium term threat to returns in both bonds and equities, because inflation and policy rate shocks reprice discount rates and increase cross asset covariance. For bonds, unexpected increases in real rates and term premium drives large price declines by way of duration. For equities, discount rate repricing compresses valuations while growth shocks hit expected cash flows. This paper focuses on a 1-5-year horizon relevant to most portfolios and business cycles. It is broken down by sections addressing the concept of systematic risk, bonds under systematic shocks, equities, stock-bond correlation regimes and the 60

Introduction Canada continues to suffer systematic risk such as household debt as it \"remains the top risk with 68% of respondents indicating that it poses a High Risk or Very High Risk to Canadian financial stability. However, the level of concem about Household debt is 7 percentage-points lower than last year"| Canadian Securities Administrators, 2025) according to CSA. The central question to this continuous problem is : what risks most threaten diversified investors over the short to medium term? Systematic risk is unpredictable and is the outcome of \"macroeconomic events that affect the market as a whole and cannot be controlled, at least by an investor" (Chen, 2025) while Idiosyncratic risk is Security-specific and diversifiable (Ancheta, 2025). | argue that systematic risk (not idiosyncratic risk) is the daminant short-to-medium-tenm threat to returns in both bands and equities, because inflation and policy-rate shocks reprice discount rates and increase cross-asset covariance. For bonds, unexpected increases in real rates and term premium drives large price declines by way of duration. For equities, discount-rate repricing compresses valuations while growth shocks hit expected cash flows. This paper focuses on a 1-5-year horizon relevant to most portfolios and business cycles. It is broken down by sections addressing the concept of systematic risk, bonds under systematic shocks, equities, stock-bond correlation regimes and the 60/40 portfolio, and counter arguments and portfolio implications. Section 2: Concept of systematic risk Systematic risk is an economy wide shocks (inflation, real growth, monetary/fiscal policy, risk appetite) that affect discount rates and cash flow expectations across many assets. Systematic risk dominates over short -medium tenm as it has tenacity, span, magnitude and co-movement. Systematic risk has a tenacity to persist as discount rate components exhibit multi-year correlation that creates influence that are not arbitraged away swiftly Furthermore, shocks span many securities simultaneously which limits diversification benefits within asset classes. While the magnitude of the mechanics in bonds and valuation sensitivities in equities translate modest macro surprises into sizeable price moves (Palazzo, 2025). Lastly, in inflationary regimes, stock-bond correlation rises which increases portfolio diversification level volatility for balanced allocation (AQR Capital Management, n.d.j. Section 3: Key issues of Bonds under systematic shock Transmission channels to bonds describes how changes in economic factor affect bond markets and their prices such a3 real-rate shocks, term-premium shocks, and