Identifying Effective Market Risk Management Strategies

As a portfolio manager at a medium-sized investment firm, you are tasked with evaluating the company's market risk exposure. The firm primarily invests in a diversified portfolio of equities and fixed-income securities. In light of increased market volatility, you are considering a number of strategies to mitigate risk while still aiming for competitive returns.

Your analysis has led you to three potential strategies for managing market risk. You need to identify which strategy typically provides the most effective means of reducing market exposure in a diversified portfolio.