PCA and K-means Clustering Analysis

1. Introduction:
This document provides a comprehensive interpretation of the PCA and K-means clustering
analysis conducted on the dataset. The dataset comprises several economic and political
indicators for different countries over specific years. We've reduced the dimensionality of
this data using PCA and further analyzed the resulting components using K-means
clustering.

2. PCA Analysis Interpretation:

a. PCA Components:
PCA (Principal Component Analysis) is a dimensionality reduction technique used to
transform high-dimensional datasets into a dataset with fewer variables, while retaining the
maximum amount of variance in the data.

- PCA1: Represents the direction of maximum variance in the original dataset. It mainly
captures the variation related to trade data, such as 'Value Export (mln US$)', 'Value Import
(mln US$)', and 'FDI (mln US$)'.
- PCA2: Captures the second highest variance in the data, orthogonal to PCA1. It mainly
represents variations related to 'H-pol' and 'Arms Total transfer (mln US$)'.

b. PCA Loadings:
PCA loadings represent the correlation between the original variables and the PCA
components. The magnitude and direction (sign) of the loadings indicate the weight and
relationship of each variable to the PCA component. For instance, a high positive loading for
'Value Export (mln US$)' on PCA1 suggests that this variable strongly influences the PCA1
score in a positive direction.

c. Variance Explained:
The variance explained by each PCA component indicates the proportion of the dataset's
total variance captured by that component. The cumulative variance explained helps to
understand how much of the total data variation is captured when considering multiple PCA
components together.

3. K-means Clustering Interpretation:

a. Clusters:
K-means clustering is an unsupervised machine learning algorithm that groups data into 'k'
number of clusters. In our analysis, we've opted for three clusters.
- Cluster 0 (Red): Represents data points that are grouped based on similar PCA1 and PCA2
values.
- Cluster 1 (Green): Represents another distinct group of data points.
- Cluster 2 (Blue): Represents the third group of data points.

b. Centroids:
The centroids (depicted by 'X' in the visualization) are the center points of each cluster.
They represent the mean PCA1 and PCA2 values of the data points within their respective
clusters. These centroids are used to determine the distance of data points from the center
of their clusters, which aids in the assignment of data points to clusters.

c. Interpretation:
The distinct clusters suggest different patterns in the data:
- Cluster 0 (Red): Data points in this cluster may represent countries that have similar trade
and FDI patterns but differ in their 'H-pol' and 'Arms Total transfer' attributes.
- Cluster 1 (Green): Represents countries with a different set of trade, FDI, 'H-pol', and
'Arms Total transfer' patterns compared to Cluster 0.
- Cluster 2 (Blue): Represents countries that might have a balance between their trade, FDI,
'H-pol', and 'Arms Total transfer' patterns, making them distinct from both Cluster 0 and 1.

The difference in symbols (triangle, circle, square) for each data point provides an
additional layer of information, representing different countries. This allows for a more
granular interpretation, understanding how each country's data relates to the overall
clustering pattern.