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I have been working on ways to measure inter market relationships among a
group of stocks/indexes using Principal Component Analysis. For this
example I used the top 11, most heavily weighted stocks in the OEX. Since
these stocks account for the majority of the moment in the OEX, I wanted
to measure their interrelationships. And While it is no surprise that
MSFT leads this pack, it is useful to know how its leadership is changing
dynamically. The chart labeled 71599 is a snapshot of this relationship
using the percentage of total eigen values for each security. This value
for MSFT was very high as it led the index to new highs. The next
snapshot labeled 101599 is for the close of Friday. While MSFT is still
leading the group its percentage eigen value has dropped significantly.
Could MSFT be losing some of its leadership? Probably not since it was
also lower at the begiining of the year. This is one way to monitor it
and see what is happening before you read about in Barrons. This
methodology can be applied to a wider array of securities (and indexes,
commodities, ect) then I have used in this example. The eigen
calculation were performed with Matlab and Excel. They can also be
calculated with TimeStat (freeware)
Ron McEwan
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