Re: [Gretl-users] Principal Components
On Fri, 22 Jan 2010, Henrique wrote:
Dear Gretl community,
I want to create a index using five variables using gretl's principal components
analysis and I would like to know if I'm doing it properly. I'll describe my
steps:
Step 1: Compute principal components (Main window, View -> Principal components);
Step 2: Save all components (PC1, ..., PC5);
Step 3: index = PC1 + ... + PC5.
Sorry, Henrique, maybe I'm missing the point, but what are you trying to
do? Principal components are useful exactly because they are orthogonal
(incorrelated if you prefer) to each other, so they carry non-overlapping
information. If you want an index that contains the maximum possible
amount of information that one single variable can contain, take the first
PC (the one associated with the highest eigenvalue) and you're ok. If you
take their sum you end up with a variable that contains LESS information,
not more.
Riccardo (Jack) Lucchetti
Dipartimento di Economia
Università Politecnica delle Marche
r.lucchetti(a)univpm.it
http://www.econ.univpm.it/lucchetti