Systematic risk
Systematic risk is the market-wide risk that hits nearly every asset at once, from recessions to interest rate moves, and holding more positions does not remove it.
Systematic risk, also called market risk, is what is left after diversification has done everything it can. Recessions, inflation surprises, interest rate moves, wars, currency shocks and broad policy changes reach almost every holding at once, in different sizes but usually in the same direction. Owning 500 stocks instead of 5 does not help here, because all 500 are standing in the same weather.
Beta is the standard measure of how much of it a particular asset carries. In asset pricing theory this is the only risk investors are compensated for holding, which is why expected return is tied to beta rather than to total volatility: the rest of the risk could have been removed at no cost, so nothing pays for it. What does reduce systematic risk is holding things that respond to the same events differently, such as government bonds or cash alongside equities, or simply carrying less exposure overall.
The mistake is counting holdings and calling the job finished. Diversification removes unsystematic risk, the company-specific part, and it removes most of it quickly, with the bulk of the benefit arriving inside the first few dozen well-spread positions. Everything after that chips at a smaller and smaller remainder while the market-wide part sits untouched. A portfolio can be diversified as well as anyone knows how and still lose a third of its value in a bad year.