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Equity PCA Factor Models

In this article, we continue our discussion on PCA and use it to decompose the volatility of a portfolio made of DIJA stocks. In particular, the posts shows:

  • a review of the proposed PCA approach applied to the equity space
  • calculation of principal components and analysis of the explained variation
  • results obtained by regression stocks returns on principal components
  • risk decomposition at stock level
  • examples based on three different portfolios

Find the source code for this article in the offical Github repository at the link: github.com/gbaglini/baglinifinance

Gianluca Baglini
Gianluca Baglini

Quantitative Researcher & Investment Analyst

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Ines
Ines
8 months ago

Thank you for the valuable insights!

Manuel
Manuel
2 months ago

Thanks Gian Luca. It’s valuable work. Keep it up!

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