So long story short, I created a Oil/Energy Index from a basket of 5 stocks in the asset class.
I am looking to use mean-reversion, in order to help rebalance the allocation of funds between difference asset classes. As a result, I had to create my own index, as the package I'm using doesn't have enough historical data on ETFs.
I have created the Index, using Laspeyres as shown here . I'm wondering what would be a good statistical method of testing how accurate this etf is against the performance of the stocks.
I was thinking a PCA, but wasn't sure what this community thought.