PCA FOR STOCK PICKING

[Pelman08]

I would like to now which financial metrics to use when I am analyzing an industry . So I ran a PCA using different stocks in an industry based off of different financial metrics . I would like to know what the first and second principle components should represent in this case .



The idea is based off of this paper https://www.researchgate.net/publication/281042621_The_Selection_of_Winning_Stocks_Using_Principal_Component_Analysis



this is the pca analysis

Rotation (n x k) = (13 x 13):

PC1 PC2 PC3 PC4 PC5 PC6 PC7 PC8

price_book1 -0.2326294 0.23808656 -0.34383928 0.39506594 -0.17589636 0.005631939 1.481288e-01 -0.12544212



price_sales1 -0.2953341 0.03231056 -0.39791599 0.08079662 -0.44956572 0.178211731 1.283100e-01 0.25338915



profit_margin1 0.2452919 0.15146781 -0.23584723 -0.08324291 -0.40242616 -0.415042109 -5.372024e-01 -0.36709976



operating_margin1 0.4604949 0.05695158 -0.44611853 0.02911251 0.13084999 0.141162009 9.830128e-02 0.06904643



rnd1 -0.1481195 -0.51008130 0.08082843 0.31825795 -0.14767174 -0.133578701 -2.235869e-01 0.31669428



wacc1 0.1170286 0.32598489 0.12421475 0.55174254 -0.00349785 0.050214012 -3.885664e-02 0.35618351



si1 -0.1299393 0.09449171 -0.26881615 -0.21901039 0.38126586 -0.671389356 1.775648e-01 0.41125604



revenue1 0.1000749 -0.57110300 -0.18342643 0.14168133 0.01143720 -0.095472155 -2.735005e-01 0.13974257



ev_ebitda1 -0.4190633 0.10875543 -0.30716490 0.01541679 0.04935613 -0.122987639 -9.171709e-02 -0.13389575



ebitda_revnue1 0.4892202 -0.10134004 -0.38000743 0.01587338 0.07191896 0.170465503 1.075778e-01 0.10582745



cashflow1 -0.1778912 -0.22024820 -0.20037303 0.36000644 0.53208906 0.073914046 2.114301e-05 -0.50658912



eps_growth1 0.2009673 -0.22566598 0.14730493 0.22313596 -0.31215893 -0.426656558 6.599544e-01 -0.27885383



analysts1 -0.1921450 -0.30498605 -0.20079300 -0.41950787 -0.17999617 0.253170549 2.235785e-01 -0.03446128





Importance of components:

PC1 PC2 PC3 PC4 PC5 PC6 PC7 PC8 PC9 PC10 PC11 PC12

Standard deviation 1.6224 1.4924 1.3076 1.1561 1.06703 0.97266 0.85922 0.79106 0.73160 0.71013 0.6182 0.40416

Proportion of Variance 0.2025 0.1713 0.1315 0.1028 0.08758 0.07278 0.05679 0.04814 0.04117 0.03879 0.0294 0.01256

Cumulative Proportion 0.2025 0.3738 0.5053 0.6081 0.69571 0.76849 0.82528 0.87342 0.91459 0.95338 0.9828 0.99535

PC13

Standard deviation 0.24599

Proportion of Variance 0.00465

Cumulative Proportion 1.00000





thank you your help will be greatly appreciated

[nikol]

We should start competition: "Who will save Pelman08"

[Jurassic]

why dont you google what pca analysis is?