Principal Component Analysis and Factor Extraction › Key Parameters
Michael BrenndoerferDecember 12, 20251 min read
Quantitative FinanceAll chapters Part 8 of 15Econometrics and Statistical Modeling
Principal Component Analysis and Factor Extraction › Key ParametersOne section · Sections in this chapter8 / 13 ↓
Sections in this chapter13
Reading tools Definitions & inline links
Choose your expertise level to adjust how many terms are explained. Beginners see more tooltips, experts see fewer to maintain reading flow. Hover over underlined terms for instant definitions.
Article links
Make inline references clickable
The key parameters for Principal Component Analysis are:
- X: The input data matrix of shape , where is the number of observations and is the number of variables.
- n_components: The number of principal components to retain. This determines the dimensionality of the reduced data.
- Standardization: Whether to scale variables to unit variance before analysis. This is critical when variables have different units or vastly different variances.
- Centering: PCA requires data to be centered (mean zero). This is handled automatically by most libraries but is a necessary preprocessing step in manual implementation.