You are managing a stock portfolio worth $24,000,000. It has a beta of 1.25. You expect there will be a correction in the stock market, which will take the market index down by 7% in the next three months. A 3-month futures contract on the stock market index is priced at 535.72 with a multiplier of $250. You decided to hedge the stock portfolio using the stock index futures.

(a) Construct an appropriate hedging strategy with the intention that only 75% exposure will be hedged.

(b) Suppose your expectation comes true and the futures price is 500.32 in 3-month time. Determine the outcomes of your hedging strategy in part (a) and its hedging effectiveness.