Principal component analysis (PCA) and index construction

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wolly77
Posts: 32
Joined: Mon Oct 05, 2009 4:28 am

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
EViews Developer
Posts: 2642
Joined: Wed Oct 15, 2008 9:17 am

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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