Application of principal component analysis in Forex market variations

Abstract

In this project I adapt principal component analysis as data driven procedure to study the variation among sixteen currencies given in Kenya shillings and to reveal any unsuspected relationship or pattern among them. Two components are extracted, the first component provided evidence of the joint movement of the currencies while the second component aided in interpretation of relationship exhibited by the currencies. SPSS (Version 10) is used for statistical analysis. The ideas are then programmed using Matlab software to confirm the results.