Mathematics
8 years ago

Unlocking Market Secrets: How Factor Analysis Shapes Investment Strategies

Encyclopedia of Financial Models
Principal Components Analysis and Factor Analysis
Sergio M. Focardi, Frank J. Fabozzi

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The article discusses how factor models are used in investment management to analyze risks. These models use factors, which can be either known or unidentified. Principal component analysis and factor analysis are methods used to identify these factors. Principal component analysis looks at the largest values in the data, while factor analysis helps to understand the structure of these factors.