Hi there!

I'm currently conducting an analysis of data from two measurements, where we are attempting to pinpoint stable and time-varying predictors for a neurological phenomenon (continuous outcome). All included patients were measured once (T1), and once again six months later (T2). We have an abundance of predictors based on previous research, some of which are correlated with each other. The plan was to conduct a multilevel regression with time points (Level 1) nested within subjects (Level 2). Due to a high degree of stability in most of the included constructs, I thought that an investigation of between-subject and within-subject covariance would be interesting, to figure out 1) stable between-subject predictors of this phenomon, and 2) correlated changes within-subjects to investigate temporal assocations. Data has adjusted to a long format (two rows per subject). Does the following procedure violate any statistical assumptions I am not aware of?

1. Generate individual mean variables (aggregate at level 2) for outcome variable and all predictor variables.
2. Generate individual mean-centered scores for all time points(centered level 1), as a deviation from the average score
3. Evaluate correlations between aggregate level 2 variables for both outcome and predictor, and run a factor analysis on all signifcant associations
4. Evaluate correlations between centered level 1-variables for both outcome and predictor, and run a factor analysis on all signifcant associations
5. Perform a linear multilevel regression first inputting factors from level 2-FA (explains only variance at level 2 in the outcome)
6. Add factors from centered level 1-FA (explains only variance at level 1 in the outcome).

While I am aware of the shortcomings of using only two time points, this approach does make sense to me as a way of evaluating stable between-subject associations and within-subject covariation with predictors. However, I am having difficulties in identifying studies which has employed a similar method. Am I misunderstanding something basic?