Principal component analysis (PCA) and index construction

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Principal component analysis (PCA) and index construction

Postby wolly77 » Sun Aug 17, 2014 3:53 pm

Dear guys, I have this problem. I am using PCA for building a sort of leading indicator index using a large dataset. I know that PCA doesn't care about correlation sign. But I think it matters for the correctness of the sign of the component extracted. If my target is to build an economic indicator, I suppose that all the variables have to be positively correlated before extracting the component. Thank you

EViews Glenn
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Re: Principal component analysis (PCA) and index constructio

Postby EViews Glenn » Wed Aug 20, 2014 7:59 am

There is no reason to require positive correlation.

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