PRINCIPAL COMPONENT ANALYSIS FOR STOCK PORTFOLIO MANAGEMENT

Abstract

In this paper the method of Principal Component Analysis is applied to three subgroups of stocks of the american index Down Jones Industrial (DJI) Average. While, the first and second group, are homogeneus, the third one contains heterogeneous stocks. Cumulative Variance and Kaiser's Rule are used to get the principal risk directions. The obtained results show how to optimize portfolios investments to derive the best returns and financial control.