Principal Component Analysis – R Code

This is an implementation of the principal component analysis (“PCA”) method on stock prices log returns in R.

# Principal Component Analysis

# clear environment and console
rm(list = ls())

# install and load required packages
# install.packages("stats")


# calculate log returns
log_prices <- log(EuStockMarkets[, 1:4])
ret = data.frame(diff(as.matrix(log_prices,lag=1,difference=1)))

# implement PCA on log returns of index levels
pca <- princomp(ret)

# plot method & print summary
biplot(prcomp(ret, scale = TRUE))
summary(prcomp(ret, scale = TRUE))

# view the scores for each date and the loadings for the components

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