Managing Market Risk with Derivatives

Medium Risk Management Applications Managing Market Risk

ABC Fund is a multi-asset investment fund that has recently faced increased volatility in its equity portfolio due to market fluctuations. The fund manager, aware of this situation, is considering several strategies to manage market risk while aiming to preserve capital. The manager is evaluating the impact of these strategies on both potential returns and overall portfolio risk.

Which of the following strategies would primarily focus on mitigating market risk in the fund's equity portfolio?

Increasing the allocation to high-yield corporate bonds to enhance total return.

Using derivatives such as put options to hedge against potential declines in equity prices.

Diversifying into emerging markets to capture higher growth potential.

Hint

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