Factor analysis

A statistical method that permits one factor or variable to replace many variables in a set. The statistical technique usually begins with a correlation matrix that shows the degree of association between pairs of variables. The technique assumes that there are a small number of intercorrelated variables (also called factors) that can be used to substitute for the set. Factor analysis is used in many widely diverse fields including, for example, economics, market pricing of commodities, psychology, education, and the physical sciences; in fact it is useful in any field in which large numbers of variables may be involved. With this technique, analysts reduce the number of elements that need to be studied and can better observe how the variables are interlinked.