You want to create an index that comprises a bunch of components. How would you choose to aggregate all the individual components? Is it context-specific?

Question

Accepted Answer

Choosing an aggregation method for an index depends on the components and their context, ensuring relevance and accuracy.

Identify the components: Understand what individual metrics or data points will be included in the index.
Determine the aggregation method: Common methods include sum, average, weighted average, or geometric mean.
Consider the context: The importance of each component may vary based on the specific application or industry.
Example: In finance, a stock index might use a weighted average based on market capitalization.
Example: In healthcare, an index for patient satisfaction might average scores from various surveys.

Accepted Answer

Use of PCA is advised. Methods of aggrefation used might be a GM, AM or a HM along with all their weighted counterparts. PCA might be come in handy. Furthermore, PCA is more generalised and has greater applicability.

You want to create an index that comprises a bunch of components. How would you choose to aggregate all the individual components? Is it context-specific?

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