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Stock selection with principal component analysis
2016
The Journal of Investment Strategies
We propose a stock selection method that is based on a variable selection method used with principal component analysis. We applied our method to stocks in the ASX200 and show that a portfolio of as little as 15 stocks can closely replicate the behaviour of the index. We show that the number of stocks required to form a diversified portfolio is not constant across time but varies with market conditions.
doi:10.21314/jois.2016.067
fatcat:z5ulkbm7wjbmlaetxjfq3pjmt4