Cluster analysis
Cluster analysis
A statistical technique that identifies clusters of stocks whose
returns are highly
correlated within each cluster and relatively uncorrelated between clusters. Cluster analysis has identified groupings such as growth, cyclical, stable and energy stocks.
Cluster Analysis
a multivariate statistical technique used to identify entities with similar characteristics from those without them.
Cluster Analysis
The term cluster analysis (first used by Tryon, 1939) actually encompasses a number of different classification
algorithms which can be used to develop taxonomies (typically as part of
exploratory data analysis ). For example, biologists have to organize the different species of animals before a meaningful description of the differences between animals is possible. According to the modern system employed in biology, man belongs to the primates, the mammals, the amniotes, the vertebrates, and the animals. Note how in this classification, the higher the level of aggregation the less similar are the members in the respective class. Man has more in common with all other primates (e.g., apes) than it does with the more "distant" members of the mammals (e.g., dogs), etc. For information on specific types of cluster analysis methods, see
Joining (Tree Clustering) ,
Two-way Joining (Block Clustering) , and
K-means Clustering .
See the
Cluster Analysis chapter for more general information; see also the
Classification Trees chapter.
cluster analysis