PCA
Posted: Fri Nov 12, 2010 6:17 am
I have computed the first principal component of a number of CDS spreads by using the covariance matrix. Because I have normalised the first difference of the CDS data before conducting PCA I was wondering how to interpret the coefficient.
Say I find 0.000374, does this mean that a movement of one standard deviation in the principal component (i.e. credit risk) results in an increase/decrease of 0.000374 in the dependent variable (which is the first difference of the Euribor-EONIA swap spread)?
Thanks in advance,
Tom
Say I find 0.000374, does this mean that a movement of one standard deviation in the principal component (i.e. credit risk) results in an increase/decrease of 0.000374 in the dependent variable (which is the first difference of the Euribor-EONIA swap spread)?
Thanks in advance,
Tom