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QMT412 Pn.

Sanizah's Notes




What is a time series?
A set of data observed over a period of time, usually of equal intervals (i.e. hourly, daily, weekly, monthly, quarterly or yearly)


Purpose of time series
Identify the fluctuations due to seasonal factors

Annual sales, revenue, production and net income of a business enterprise over a number of years 2

Prepared by Sanizah Ahmad 1

Marketing example:

Medical Example
Three signals are measured from the same ill human simultaneously: Electrocardiogramme (ECG), pressure, respiration.

Monthly product sales of a certain company


Floating of average level of ECG and especially of pressure are caused by breathing.




my 8 2 .my 5 Cont…  (3) SEASONAL VARIATION involve pattern of change which are repeated from year to year.  (4) IRREGULAR VARIATIONS describe the movements of variable which is completely unpredictable Example : Example : weather and holidays COMPONENT OF A TIME SERIES TREND ANALYSIS  Trend can be described using a graph called histogram where the independent variable (x-axis) is time and dependent variable (y-axis) is the observed 6 sanizah@tmsk. Example : Cost of living reflect the Consumer Price Index (CPI) TREND (T) CYCLICAL VARIATIONS (C) SEASONAL VARIATIONS (S) IRREGULAR VARIATIONS (I) Histogram Method of Least Squares  Moving Average Additive Model Multiplicative Model (2) CYCLICAL VARIATIONS movement repeats its patterns over a period of time (2-10 years) Example : Economic recession sanizah@tmsk. Sanizah's Notes 03/05/2013 COMPONENTS OF A TIME SERIES COMPONENTS OF TIMES SERIES  (1)TREND long term general movement where the value of the variable tends to increase or decrease over a long period of time (more than10 years).edu. 7 sanizah@tmsk. epidemics sanizah@tmsk.uitm.

edu.uitm. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 15 24 22 20 21 23 28 31 30 34 12  y b  x n n Moving Average T  a  bx AIM of trend analysis:  to predict the future based on the past after minimizing the variations involved sanizah@tmsk. Year Profit (RM’000) a) b) c) d) Find the trend 9 where T = trend x = time period a = estimated trend at time zero b = increase in the trend per unit 10 Cont…  Example 1(pg.QMT412 Pn.uitm. Find the trend Methods of Least Squares or Least Squares Method (trend equation) USE LEAST SQUARES METHOD The purpose is to obtain the line of the best fit (trend equation) from the 11 sanizah@tmsk. Forecast the profit for 2012 and 2013. Plot the time series data and the trend line. Sanizah's Notes 03/05/2013 Other Methods of Trend Analysis (main focus of this chapter)  (1) ESTIMATION OF THE TREND  - 1. 167)  Values of a and b can be determined by the following formulas n b 2  x  2 x   n a x y  xy    The profits of a grocery shop over the 10 years period 20022011 are given in the table 3 . The equation of the least squares line (trend line) is  

quarterly (4)   2009 2010 2011 a) b) c) d) 48 65 73 44 32 38 26 30 34 38 35 46 Plot the data.: 5 days a Sales (RM’000) Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter (2) Moving Average Method Calculated by averaging the most recent n values in a time series  Can be used to forecast the data value for the next period but not for periods which are too far in the future Centred moving average (when the period is an even number of terms) i. Year 2009 2010 2011 a) b)  Example 4 (pg.e. 172) The following table shows the sales of an electric company for the year 2009 to 2011.uitm. sanizah@tmsk. 174) Table shows the number of computers produced by a factory during the 14 Example 3 ( afternoon and evening shifts of the week. Calculate the trend using the least squares Estimate the trend values for 1st and 2nd quarter 2009. 170)  The following table shows the sales of an electrical item of a company for the year 2009 to 13 Simple moving average (when the period is an odd number of terms) i.uitm.e. Forecast/estimate the trend values for 1st and 2nd quarters of the year 2012. Forecast the trend of sales for 1st and 2nd quarter 2012. Day Monday Tuesday Wednesday Thursday Friday Morning (M) Afternoon (A) Evening (E) Sales (RM’000) 1st quarter 48 65 73 2nd quarter 3rd quarter 44 32 38 26 30 34 4th quarter 38 35 46 255 234 237 240 240 224 239 233 227 230 241 250 256 259 256 Calculate the trend values using the moving average 16 4 .QMT412 15 Calculate the trend values using the moving average method.uitm. three (3) shifts a day sanizah@tmsk. sanizah@tmsk. Sanizah's Notes 03/05/2013 Example 2 (pg.: monthly (12).

my 17 sanizah@tmsk. Sanizah's Notes 03/05/2013 COMPONENT OF A TIME SERIES SEASONAL VARIATIONS We will only discuss on multiplicative model Seasonal Variation Multiplicative model Actual data = trend x seasonal variation x cyclical variation x catastrophic variation x residual variation  Let the assumption be: There is NO cyclical or catastrophic component ADDITIVE MODEL MULTIPLICATIVE MODEL Then the formula is: Actual data=trend x seasonal variation x residual variation Pn. (a) Calculate the seasonal index of the sales for each quarter and interpret the results. 19 5 177) Table shows the sales of an electrical item of a company for the year 2009 to 2011.uitm. (b) Forecast the sales for the 1st and 2nd quarters of the year 18 Example 5 (Pg.