The working of the dendrogram can be easily understood using the given below diagram:
Image Source: Google Images
In the above diagram, the left part is showing how clusters are formed during the execution of the agglomerative clustering algorithm, and the right part is showing the corresponding dendrogram formed.
Step by step working of the algorithm:
Step-1: Firstly, the data points P2 and P3 merged together and form a cluster, correspondingly a dendrogram is created, which connects P2 and P3 with a rectangular shape. The height is decided according to the Euclidean distance between the data points.
Step-2: In the next step, P5 and P6 form a cluster, and the corresponding dendrogram is created. It is higher than the previous, as the Euclidean distance between P5 and P6 is a little bit greater than the P2 and P3.
Step-3: Again, two new dendrograms are formed that combine P1, P2, and P3 in one dendrogram, and P4, P5, and P6, in another dendrogram.
Step-4: At last, the final dendrogram is formed that combines all the data points together.
Note: As per our requirement according to the problem statement, we can cut the dendrogram at any level.