II.1.4.3 - Orthogonal Regression

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Joined: Tue Aug 19, 2014 8:11 pm

II.1.4.3 - Orthogonal Regression

Postby fxleonardo » Sun Aug 24, 2014 9:47 pm

Hi All,

Has anyone ever done a factor modeling using a combination of principal components factors along with other factors such as VIX spread, etc?

I'm thinking of doing factor modeling of a multi-class portfolio ie. containing both fixed income and equity. Thus, the use of a three factors principal component from PCA is relevant, but since there's an equity part in the portfolio, I thought of adding other covariates (independent factors) as well in the factor model to calculate the factor attributions for the portfolio returns (the dependent variable).

Please let me know if mixing those two type of covariates make sense.

Thank you!

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