Factor analysis helps you determine how independent and dependent variables fit together. It’s a commonly used technique in both statistics and finance. Fortunately, Excel makes it very easy to do. Let’s learn how to do factor analysis in Microsoft Excel.
How to Do Factor Analysis in Excel
Consider columns of data, containing independent and dependent variables. There are two independent variables, and one independent variable. Factor analysis helps you measure results. And Excel makes it a breeze. To do factor analysis in Excel, begin by going to the Data tab on the ribbon. The ribbon is the series of menu tabs – Home, Insert, Draw, and so forth – across the top of your screen.
On the Data tab, you have an array of options to choose from. The one you’re looking for is on the far right side, and it’s labeled Data Analysis. Go ahead and click on this option.
The Data Analysis menu will pop up. You’ll see a list of choices to choose from. For datasets like this, with two independent variables, you’ll need two-factor analysis. Scroll up and choose Anova: Two-Factor Without Replication. Then, click OK.
On the Input Range box, click and drag to select your range of data. In this case, the range is A2:B6. Select an output location, then click OK.
You can choose to place it on your existing sheet in a given location. Or, you can open a new sheet or even a new Excel workbook. Excel will process your data and perform factor analysis on it.
In seconds, a report will generate with all of your factor analysis data inside. By reviewing it, you can quickly determine how variables interact together. This will help you make more accurate and meaningful statistics as you work through economic, statistical, or financial questions.