Market Risk Management Strategies

Medium Risk Management Applications Managing Market Risk

Global Investment Partners is a hedge fund that employs a variety of strategies to manage market risk as part of its portfolio management. Recently, the fund's management has been concerned about an overall downturn in equity markets due to rising interest rates and geopolitical tensions. In response, they are considering three different strategies to mitigate market risk before the quarterly report.

They want to ensure that their portfolio is sufficiently hedged against potential declines in equity prices while still allowing for some upside potential. Analyze the following strategies being considered:

Implement a short position in a representative equity index to hedge against potential market declines.

Increase exposure to high-beta stocks, which tend to outperform in bullish markets.

Purchase out-of-the-money put options on individual equities to limit downside risk.

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