Factor Analysis

Sub : Business
Research
factor
analysis
Meaning
Factor analysis is a branch
of multivariate statistical analysis
which is concerned with the internal
relationships of a set of variants. It
aims
at
not
only
explaining
observed relations among a number
of variables in terms of simpler as
well as fewer relations, but also at
seeking basic underlying influences
and
the
development
of
classificatory schemes. It is thus a
methodology
for
classifying
manifestation or variables.
2
USES OF FACTOR
ANALYSIS
1. Scale
construction
2. Establish antecedents
3. Psychographic
profiling
4. Segmentation analysis
5. Marketing studies
3
Method Of Factor
Analysis
There are several method of

factor analysis, but they do not
necessarily give same results. As
such factor analysis is not a single
unique method but a set of
techniques. Important methods of
factor analysis are:
I. The centroid method;
II.The principal components method;
III.The maximum likelihood method.
4
Before
we
describe
these
different methods we should
understand some basic terms:
i. Factor
ii.Factor loadings
iii.Communality
iv.Eigen value (or latent root)
v.Total sum of squares
vi.Rotation
vii.Factor scores
(A) Centroid Method

The centroid methods tends
to maximize the sum of loadings,
disregarding signs; it is the method
which extracts the largest sum of
absolute loadings for each factor in
turn.
It
is
defined
by
linear
combinations in which all weights are
either + 1.0 or -1.0 The main merit of
this method is than be it is relatively
simple, can be easily understood and
involves simpler computations.
6
Various steps
This
method
starts
with
the
computation
of
a
matrix
of
correlations.
II. If the correlation matrix so obtained
happens to be positive manifold, the
centroid method requires that the
weights for all variables be + 1.0.
III. The centroid factor is determined as
under:
(a) the sum of the coefficients in
each column of the correlation
matrix is worked out.
I.
(b) Then the sum of these column

sums (T) is obtained.
(c) The sum of each column
obtained as per (a) above is
divided by the square root of T
obtained (b) above, resulting in
what are called centroid loadings.
IV.To obtain second centroid factor,
one must first obtain a matrix of
residual coefficients.
V. For sub sequent factors the same
process
outlined
above
is
repeated.
8
(B) The Principal

Components Method
Principal-components method of factor

analysis, developed by H. Hotelling, seeks
to maximize the sum of squared loadings
of
each
factor
extracted
in
turn.
Accordingly PC factor explains more
variance
than
would
the
loadings
obtained from any other method of
factoring.
the aim of the principal components
method is the construction out of a given
set of variables XJ s(j=1,2,,k)of new
variables (pI), called principal components
which are linear combinations of the X S
9
(c)Maximum likelihood(ML)
method
The ML method consists in obtaining
sets of factor loadings successively in
such a way that each, in turn, explains
as much as possible of the population
correlation matrix as estimated from
the sample correlation matrix.
If RS stands for the correlation matrix
actually obtained from the data in a
sample, Rp stands for the correlation
matrix that would be obtained if the
entire population were tested, then
the ML method seeks to extrapolate
what is known from Rs in the best
possible way to estimate Rp.
10
Thus,
the ML method is a
statistical approach in which one
maximizes some relationship
between the sample of data and
the population from which the
sample was drawn.
The ML factor loadings can be
interpreted in a similar fashion
as we have explained in case of
the centroid or the PC method.
11
R-type and Q-type factor

analysis
In
R-type
factor
analysis,
high
correlations occur when respondents
who score high on variable 1 also score
high on variable 2 and respondents
who score low on variables 1 also
score low on variable 2.
Factors emerge when there are high
correlation within groups of variables.
in
Q-type
factor
analysis,
the
correlations are computed between
pairs of respondents instead of pairs
of variables.
12
High
correlation
occur
when
respondent
1s
pattern
of
responses on all the variables is
much like respondent 2s pattern of
responses.
Factors emerge when there are
high correlations within groups of
people.
Q-type analysis is useful when the
object is to sort out people into
groups based on their simultaneous
responses to all the variables.
13

Factor Analysis

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Factor Analysis

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Sub : Business

There are several method of

(A) Centroid Method

(b) Then the sum of these column

(B) The Principal

Principal-components method of factor

R-type and Q-type factor

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