Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. It's 100% free, no registration required.

Sign up
Here's how it works:
  1. Anybody can ask a question
  2. Anybody can answer
  3. The best answers are voted up and rise to the top

I'm working through the Quantitative Equity Portfolio Management book by Chincarini and Kim.

I'd like to build a basic industry-based fundamental factor model. As this is a pet project for pedagogical purposes, I don't have the money to spend on Barra's GICS classifications. I also understand that other industry classifications (SIC and NAICS) are fairly useless for factor models.

Is there a reasonable open-source or homemade alternative (using, say, k-means clustering or non-negative matrix factorization) to create my own industry factors for US equities?

share|improve this question
If you can use clustering or PCA to determine your own factors, then you'd have a risk model, which in my opinion is far more useful than any industry classification. – chrisaycock Apr 22 '13 at 17:21
Even if I use PCA to generate an accurate risk model, won't there be times where I want a more easily interpreted model (see this Q&A when doing performance reporting, for example)? – MikeRand Apr 23 '13 at 10:43

Your Answer


By posting your answer, you agree to the privacy policy and terms of service.

Browse other questions tagged or ask your own question.