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Int. J. Financial Stud. 2017, 5(3), 15; doi:10.3390/ijfs5030015

Financial Insights from the Last Few Components of a Stock Market PCA

1
Department of Economics and Finance, University of Canterbury, Private Bag 4800, Christchurch 8140, New Zealand
2
Centre for Applied Statistics, University of Western Australia, 35 Stirling Hwy, Crawley 6009, Australia
*
Author to whom correspondence should be addressed.
Academic Editor: Nicholas Apergis
Received: 14 March 2017 / Revised: 10 July 2017 / Accepted: 12 July 2017 / Published: 20 July 2017
View Full-Text   |   Download PDF [505 KB, uploaded 26 July 2017]   |  

Abstract

We show that the last few components in the principal component analysis of the correlation matrix of a group of stocks may contain useful financial insights by identifying highly correlated pairs or larger groups of stocks. The results of this type of analysis can easily be included in the information an investor uses to manage an investment portfolio. View Full-Text
Keywords: principal component analysis; stock correlation; diversification; stock portfolios; ASX 200 principal component analysis; stock correlation; diversification; stock portfolios; ASX 200
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Yang, L.; Rea, W.; Rea, A. Financial Insights from the Last Few Components of a Stock Market PCA. Int. J. Financial Stud. 2017, 5, 15.

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Int. J. Financial Stud. EISSN 2227-7072 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
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