November 29th, 2005, 8:41 pm
I think you mean factor analysis, which is a social science term for principal component decomposition. The factor loadings translate data to components.For example, you might decompose the yield curve into three different factors that correspond to level, steepness and twist. Each of these moves independently, unlike, say, the 1-year and 10-year interest rates. The factor loadings for the 1-year rate might be 0.9*F1 - 1*F2 + 1*F3.