Correlated Factors - Quant question

Let’s say you have a Fund that has a Beta of:

0.20 to the HY Market

0.40 to the US Equity Market

0.35 to the International Equity Market

I don’t believe you can calculate expected return for the Fund as:

= RFR + B(HY Risk Premium) + B(US Equity Risk Premium) + B(Int’l Equity RIsk Premium)

…because the three markets are correlated. How do you get around this issue?

looks like you are describing the APT? each of the 3 funds could be expressed as Rf + betas * risk premiums. in the total portfolio you would weight each fund and calc the portoflio beta for each risk premium.