The correct strategy to hedge away all of the exposure to both risk factors A and B without selling the portfolio is to short sell a hedge portfolio with 30% allocation to factor A portfolio, 50% allocation to factor B portfolio, and 20% allocation to the risk-free asset. This strategy is based on the concept of factor portfolios. A factor portfolio is a well-diversified portfolio designed to have a beta equal to 1 for one of the risk factors and betas equal to zero for all the remaining factors. By short selling the hedge portfolio, the investor can offset the 0.30 and the 0.50 exposures to risk factors A and B respectively. The hedge portfolio also has similar exposures to the two factors, which means that the risks inherent in the original portfolio can be effectively offset without the need to sell the portfolio. This strategy allows the fund manager to maintain the portfolio while eliminating the exposure to the risk factors.

Choice A is incorrect. Short selling a hedge portfolio with 50% allocation to factor A and 30% allocation to factor B would not effectively eliminate the exposure to these risk factors. The allocations are reversed in relation to the factor betas of the risks, which means that this strategy would over-hedge risk A and under-hedge risk B.

Choice C is incorrect. Buying a hedge portfolio with 50% allocation to factor A and 30% allocation to factor B would increase rather than decrease the exposure of portfolio Z to these risks. This is because buying increases exposure while short selling reduces it.

Choice D is incorrect. Buying a hedge portfolio increases exposure while short selling reduces it. Buying the hedge portfolio with 30% allocation to factor A and 50% allocation to factor B would effectively double the exposure to the given risk factors instead of hedging them away.