For context, I am building an eigenportfolio following the conventions of Avellaneda and Lee Statistical Arbitrage in the U.S. Equities Market (2008), and I get negative weights for eigenportfolios 2,3,.., and so on.
I wanted to know if the correct way to normalize is to divide each element by the sum of elements, as you would do when you have positive weights? I was thinking of taking the sum of the absolute value and then dividing each element by that.
I was having some difficult time visualizing implications under both cases, and so was unsure which method is more appropriate...
I would be grateful if you could provide some kind guidance on this matter.