Market Risk Management Strategy Evaluation

Consider a hedge fund portfolio manager who is concerned about the potential for significant losses due to market risk. The manager has decided to implement a market risk management strategy that includes the use of Value at Risk (VaR) and stress testing. The portfolio is heavily invested in emerging market equities and high-yield bonds. In evaluating different strategies for managing market risk, the portfolio manager weighs the effectiveness and limitations of each approach.

Which of the following market risk management strategies would most appropriately complement the portfolio manager's current strategies to mitigate potential losses due to market volatility?