Evaluating Credit Risk Management Strategies

You are the Chief Risk Officer at a global investment firm that is experiencing increased volatility in credit markets. The firm has a substantial allocation to corporate bonds, particularly in sectors sensitive to economic cycles, such as consumer discretionary and energy. You are tasked with reviewing the firm's credit risk management framework to ensure that it can effectively address potential defaults.

Recently, the firm's analysts identified that the credit spreads on corporate bonds have widened significantly, indicating a perceived increase in credit risk. Moreover, a comprehensive analysis will assess the efficacy of various credit risk mitigation strategies, including diversification, credit derivatives, and internal credit ratings.

Which of the following strategies would most effectively reduce the portfolio's overall credit risk exposure?