A statistical tool in which variables (people, events, etc.) are sorted into homogeneous groups, or clusters, such that, for certain criteria, members within a group exhibit more similarities than do members between groups. For example, a study of retailers might cluster companies according to geographic area.
statistical technique that identifies clusters of stocks whose returns are
highly correlated within the cluster. However, the returns are relatively
uncorrelated between clusters. Cluster analysis has the ability to identify
groups such as growth, cyclical, and stable stocks.