- Generate a correlation matrix for all variables
- If the correlation between variables are small, it is unlikely that they share common factor (variables must be related to each other for the factor model to be appropriate)
- Think of correlations in absolute value
Bartlett test
- uses to test the hypothesis the correlation matrix is an identity matrix (all diagonal terms are 1 and off-diagonal terms are 0)
- If the value of the test statistic for sphericity is large and the associated significance level is small, It is unlikely that the population correlation matrix is an identity.
- If the hypothesis that the population correlation matrix is an identity cannot be rejected because the observed significance level is large, the use of the factor model should be reconsidered.