Arrangement of statistical data in chronological order in accordance with occurrence of time is known as Time series.

The objective of time series analysis is to find a pattern in the historical data and then extrapolate the pattern into the future.

Time Series Patterns

Actual of the variable at time t = Mean value of the variable at time t + Random deviation from the mean value of the variable at time t.

i.e Actual = Pattern + error

Utilities: Determine the type and nature of the variations. Compare the actual value and the expected value. Predict the behavior of the variable in the future. Compare the changes in the values of different phenomenon at different times.

Components of a Time Series

Trend Cyclical Variation Seasonal Variation Irregular Variation

Decomposition Models
Additive Model
In this model, it is assumed that the effect of various components can be estimated by adding the various components of a time-series. It is stated as: Y=T+C+S+I Where Y is the time series value at time t T is the trend value C is the cyclical variation at time t S is the seasonal variation at time t I is random fluctuation at time t
.

 Multiplicative Model
The actual values of a time series, represented by Y can be found by multiplying four components at a particular time period. The effect of four components on the time series is interdependent. The multiplicative time series model is defined as: Y=TCSI

Smoothing Methods
The objective of smoothing methods is to smooth out the random variations due to irregular components of the time series.
Moving averages Weighted moving

averages

Moving Averages
Moving average, MA t + 1 = S{Dt + Dt - 1 + Dt n
2

+ ... + Dt -

n + 1}

where t = current time period D = actual data which is exchanged each period n = length of time period

 The following table shows the production volume in 000 tonnes for a product. Use these data to compute a 3 year moving average for all available years. And also find the error. Year Production
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 21 22 23 25 24 22 25 26 27 26

Weighted Moving Averages

Weighted Moving average !

?( weight for period n) * (Data value in period n)A

sum of weights

 Vacuum cleaner sales for 12 months is given below. The owner of the supermarket decides to forecast sales by weighting the past three months as follows:
Weight applied 3 2 1
Month 1

Month Last month Two months ago Three months ago

3 13

4 16

5 19

6 23

7 26

8 30

9 28

10 18

11 16

12 14

Sales

10 12

 A state government is studying the number of traffic fatalities in the state resulting from drunken driving for each of the last 12 months.

1 2 3 4 5 6 7 8 9 10 11 12 Accidents 280 300 280 280 270 240 230 230 220 200 210 200
Month
Calculate 4 monthly moving average.

 Measurement of Trend 1. Principle of least squares Linear trend Quadratic trend Exponential trend 2. Method of Semi- averages

 Plot the time series and comment on the appropriateness of a linear trend for the following data. If not what type of functional form do you believe would be most appropriate for the trend pattern of this time series?

Year Sales

10

400 390 320 340 270 260 300 320 340 370

 The president of a small manufacturing firm is concerned about the continual increase in manufacturing costs over the past several years. The following figures provide a time series of the cost per unit for the firm s leading product over the eight years.
Year Cost/unit
1 20 2 24.5 3 28.2 4 27.5 5 26.6 6 30 7 31 8 36

Does a linear trend appear to be present?

 Below are given the figures of production in 000 quintals of a sugar factory.

Year Production

1995 1996 1997 1998 1999 2000 2001 80 90 92 83 94 99 92

Fit a straight line trend Plot these data and show the trend line Estimate the production in 2004

Semi-Averages
In this method, the whole data is divided into two parts with respect to time. In case of odd number of years the two parts are obtained by omitting the value corresponding to the middle year. We compute the A.M for each part and plot these two averages against the middle values of the respective periods by each part. The line obtained on joining these two points is the required trend line.

 The owner of a small company manufactures a product. Since he started the company, the number of units of the product he has sold is represented by the following time series:

Year Demand

1995 1996 1997 1998 1999 2000 2001 100 120 95 105 108 102 112

Find the trend line that describes the trend by using Semi-averages and forecast the demand for 2005

 Fit a trend line to the following data by the method of semi-average and forecast the sales for the year 2002.

Year
1993 1994 1995 1996 1997 1998 1999

Sales
102 105 114 110 108 116 112

 Measurement of Seasonal effects