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  • What does the "predict" command produce in Principal Component Analysis?

    I am trying to use Principal Component Analysis to convert 10 portfolio returns into 3 most important statistical component returns. What I did is
    Code:
    pca r1-r10
    predict pc1 pc2 pc3
    However, when looking at the generated variables, I am really confused. What are they? How are they computed from eigenvectors of the original covariance matrix?

  • #2
    have you looked at the following help file:
    Code:
    help pca postestimation##predict
    ?
    you might also look at the "methods and formulas" section of the associated manual entry (click on the link at the top of the help file)

    Comment


    • #3
      In addition to Rich Goldstein 's excellent advice, note also that with your syntax it's the correlation matrix that is being used, not the covariance matrix.

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