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Factor Analysis

Factor analysis is a technique used to reduce a large number of variables into fewer factors by extracting the maximum common variance from all variables and combining them into common scores. There are different methods of factor analysis, including principal component analysis, common factor analysis, image factoring, and maximum likelihood method. Factor analysis can be exploratory to identify relationships between variables, confirmatory to test predetermined relationships, or used in structural equation modeling.

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171 views

Factor Analysis

Factor analysis is a technique used to reduce a large number of variables into fewer factors by extracting the maximum common variance from all variables and combining them into common scores. There are different methods of factor analysis, including principal component analysis, common factor analysis, image factoring, and maximum likelihood method. Factor analysis can be exploratory to identify relationships between variables, confirmatory to test predetermined relationships, or used in structural equation modeling.

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Keerthana keeru
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© © All Rights Reserved
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FACTOR

ANALYSIS
FACTOR ANALYSIS
Factor analysis is a technique that is used to reduce a large
number of variables into fewer numbers of factors. This
technique extracts maximum common variance from all
variables and puts them into a common score. As an index of
all variables, we can use this score for further analysis.
Factor analysis is part of general linear model (GLM) and this
method also assume several assumptions: there is linear
relationship, there is no multicollinearity, it includes
relevant variables into analysis, and there is true correlation
between variables and factors. Several methods are
available, but principal component analysis is used most
commonly.
METHODS OF FACTORING
There are different methods used to extract the factor from the
data set:-
1. Principal component analysis:
It is a statistical procedure that uses
an orthogonal transformation that converts a set of correlated
variables to a set of uncorrelated variables. PCA is the most widely
used tool in exploratory data analysis and in machine learning for
predictive models.
2. Common factor analysis:
The second most preferred method by
researchers, it extracts the common variance and puts them into
factors. This method does not include the unique variance of all
variables. This method is used in SEM.
3. Image factoring:
This method is based on correlation matrix. OLS
Regression method is used to predict the factor in image factoring.

4. Maximum likelihood method:


This method also works on
correlation metric but it uses maximum likelihood method to
factor.

5. Other methods of factor analysis:


Alfa factoring outweighs least squares.
Weight square is another regression based method which is used
for factoring.
TYPES OF FACTOR ANALYSIS:
A factor analysis is mainly used for interpretation of data
and in analysing the underlying relationships between
variable and other underlying factors that may determine
consumer behaviour. Instead of grouping responses and
response types, factor analysis segregates the variable and
groups these according to their co relevance.
There are mainly three types of factor analysis that are used
for different kinds of market
research and analysis.
1. Exploratory factor analysis
2. Confirmatory factor analysis
3. Structural equation modelling
1.EXPLORATORY FACTOR ANALYSIS:-
Exploratory factor analysis is a
statistical techniques that is used to reduce data to a
smaller set of summary variables and to explore the
underlining theoretical structure of the phenomena. It is
used to identify the structure of the relationship between
the variable and the respondent.
2. CONFIRMATORY FACTOR ANALYSIS:-
Confirmatory factor analysis on the other hand is
used as tool in market research and analysis to reconfirm the
effects and correlation of an existing set of predetermined
factors and variables that affect these factors. Structural
equation modeling hypothesizes a relationship between a set
of variables and factors and tests these casual relationships
on the linear equation model.
3. STRUCTURAL EQUATION MODELING:-
Structural equation modeling can
be used for exploratory and confirmatory modeling alike,
and hence it can be used for confirming results as well as
testing hypotheses. Factor analysis will only yield accurate
and useful results if done by a researcher who has adequate
knowledge to select data and assign attributes. Selecting
factors and variables so as to avoid too much similarity of
characteristics is also important. Factor analysis, if done
correctly, can allow for market research and analysis that
helps in various areas of decision making like product
features, product development, pricing, market
segmentation, penetration and even with targeting.
THANK YOU

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