Our goal is to determine a model that explains the observed data and allows extrapolation into the future to provide a forecast. The simplest model suggests that the time series in Fig. 1 is a constant value
determined by a random variable
.......................................................... (1)The upper case symbol
represents the random variable that is the unknown demand at time
, while thelower case symbol
is a value that has actually been observed. The random variation
about the meanvalue is called the
, and is assumed to have a mean value of zero and a given variance. It is alsocommon to assume that the noise variations in two different time periods are independent.
Analysis of Time Series
Time series analysis comprises methods for analyzing time series data in order to extract meaningfulstatistics and other characteristics of the data. Time series data have a natural temporal ordering. Thismakes time series analysis distinct from other common data analysis problems, in which there is no naturalordering of the observations (e.g. explaining people's wages by reference to their education level, wherethe individuals' data could be entered in any order). Time series analysis is also distinct from spatial dataanalysis where the observations typically relate to geographical locations (e.g. accounting for house prices by the location as well as the intrinsic characteristics of the houses). Time series analysis provides tools for selecting a model that can be used to forecast of future events.There are two main goals of time series analysis:(a) Identifying the nature of the phenomenon represented by the sequence of observations, and(b) Forecasting (predicting future values of the time series variable).