How to protect diversified portfolio?

You can diversify by owning bonds as well as stock; owning small, midsized and large companies; and by owning different funds, some of which some are value oriented, while others are growth oriented. More sophisticated approach will be to use Commodity fund and Hedge funds. Commodity index fund is a good alternative asset class to reduce over all risk of a diversified portfolio.

You can follow any one of the following option to protect down slide of your investment
a.Purchasing out-of-the-money puts and calls, for very small sums of money, and be content when they expire worthless.
b.You can also buy future but it involves more money.
c.If you have a home loan with a variable-rate mortgage loan, that can be protected by buying out-of-the-money bond puts.
d.A retired couple with a large municipal bond portfolio might consider a combination of owning some precious metal warehouse receipts and at the same time using a small portion of their interest stream to purchase out-of-the-money gold calls.
e.You can sell US dollar index or buy Euro. You can involve in Forex trading in small amount.
f.Considering strong bull market, you can go long term long on commodity and roll over your contract every month end.

How to protect bond portfolio against dip in currency
If dollar price decreases, price of municipal bond decreases but commodity price will increases.

In this case exercise option to buy commodity and sell USD.

How to hedge Large cap stock against fall of USD.

Any increase in US dollar, reduces stock price and commodity price.
The options purchased should behave in the opposite manner of the basic portfolio and should not be purchased for speculative gain through trend watching, market timing, or chart pattern recognition.

While classic diversification attempts to reduce the overall volatility of the portfolio, real diversification provides customized insurance against a drop in value of the primary assets . The asset class used as a hedge must have an inverse relationship or correlation with the asset being hedged. Simply put, as the price of one goes up, the price of the other should go down.
Your investment philosophy is to own a small part of the company for at least 20 years. This ownership mentality will really give you money in the long run.

In the high bull market do partial profit book regularly. If market sentiment is strong bull, use Future and options strategies.
If market sentiment is strong bear buy put option. Use 5% of your money in Future and Options trading.
You should use Future and Option for portfolio management of your stock portfolio. Option trading basically used to hedge your asset and also make some speculative gain.

In strong bear market, your blue chip companies can generate good income if you use covered call option regularly. It's not difficult to get 40% p.a. ROI by writing Covered Call Option.

In short, the stock market is a voting machine and much of the time it is voting based on investors' fear or greed, not on their rational assessments of value. Stock prices can swing widely in the short-term but they eventually converge to their intrinsic value over the long-term.