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Medium · statistical_analysis · Quant Researcher interview question · multicollinearity, vif, regression_diagnostics, factor_models, statistical_analysis
Multicollinearity inflates regression coefficient variance, destabilizing factor weight estimation in multi-factor models. The Variance Inflation Factor (VIF) quantifies this inflation by measuring how much the variance of an estimated regression coefficient increases due to collinearity. Calculating VIF is a critical diagnostic for building robust alpha signals and risk models, ensuring that factor exposures are reliably estimated. Task Implement the function variance_inflation_factor(X) which