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A Dendrogram Using Single Linkage and Hierarchical Procedures

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Sample correlations for five stocks are given. Treating the sample correlations as similarity measures, cluster the stocks using the single linkage and complete linkage hierarchical procedures. Draw the dendrogram and compare the results.

JPMORGAN Citibank WellsFargo RoyalDS ExxonMobil
JPMORGAN 1
Citibank 0.63 1
WellsFargo 0.51 0.57 1
RoyalDS 0.12 0.32 0.18 1
ExxonMobil 0.16 0.21 0.15 0.68 1

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Solution Summary

The solution gives detailed steps on drawing the dendrogram and compare the results using the single linkage and complete linkage hierarchical procedures.

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Answer: let 1 be JPMORGAN, 2 be Citibank, 3 be WellsFargo, 4 be RoyalDS and 5 be ExxonMObile respectively.

For Single linkage,

Stage 1: S12=0.63 and S45=0.68 (both data are given in the question)

Stage 2: S3(12)=max(S31, S32)=max(0.51, ...

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