Firstly, I'm a brazilian trader and fan of your work.
I am a bit confused with the heding strategy using PCA.
Lets say i did the PCA in the correlation matrix of a serie of normalized returns, and get as result for the first 2 PCs:
PC1= 0,5.3m 0,4.6m 0,3.9m. (shift)
PC2=0,8.3m 0,1.6m -0,4.9m
To immunize against the PC1 and PC2 a portofolio composed with "n" zero-coupons risk-free fixed bonds, with present value = PV , how should i proceed?
I should choose k securities that neutralize the impacts of the PCs in the yield curve and so on the PV of the portfolio, right?
But my question is, how should i observe the impacts of the PCs in the yield curve, so i could se the variance in the PV of the portofolio?
I mean, i did the PCA in the normalized returns of the serie of yields, and i got the PC1= 0,5.3m 0,4.6m 0,3.9m. (shift).What does that mean exactly in the original yield curve? If wanna check the impact of PC1 in the curve (not into the normalized returns), how should i proceed?