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Machine Learning for Hackers by John Myles White, Drew Conway

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Chapter 8. PCA: Building a Market Index

Unsupervised Learning

So far, all of our work with data has been based on prediction tasks: we’ve tried to classify emails or web page views where we had a training set of examples for which we knew the correct answer. As we mentioned early on in this book, learning from data when we have a training sample with the correct answer is called supervised learning: we find structure in our data using a signal that tells us whether or not we’re doing a good job of discovering real patterns.

But often we want to find structure without having any answers available to us about how well we’re doing; we call this unsupervised learning. For example, we might want to perform dimensionality reduction, which happens when we shrink a table with a huge number of columns into a table with a small number of columns. If you have too many columns to deal with, this dimensionality reduction goes a long way toward making your data set comprehensible. Although you clearly lose information when you replace many columns with a single column, the gains in understanding are often valuable, especially when you’re exploring a new data set.

One place where this type of dimensionality reduction is particularly helpful is when dealing with stock market data. For example, we might have data that looks like the real historical prices shown in Table 8-1 for 25 stocks over the period from January 2, 2002 until May 25, 2011.

Table 8-1. Historical stock prices

DateADCAFL...UTR
2002-01-02 ...

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