Effective Market Risk Management Strategy

In a recent market volatility analysis, a portfolio manager is considering implementing various strategies to mitigate market risk for a diversified equity portfolio valued at $10 million. The portfolio exhibits a beta of 1.3 and has been experiencing increased drawdowns during market downturns. The manager is evaluating three potential strategies to manage market risk effectively:

1. Hedging the equity exposure using S&P 500 futures contracts.

2. Investing a portion of the portfolio in low-volatility utility stocks.

3. Increasing cash allocations to 20% of the portfolio to buffer against market declines.

Which of the following strategies would be most effective in reducing the overall market risk of the portfolio?