TIME SERIES ANALYSIS

Definition
Time series analysis is a statistical technique that deals with time series data, or trend
analysis. Time series data means that data is in a series of particular time periods or
intervals. Time series analysis refers to a particular collection of specialized regression
methods that illustrate trends in the data. It involves a complex process that incorporates
information from past observations and past errors in those observations into the estimation
of predicted values.

Components of Time Series Data

An observed time series can be decomposed into three components:

(1) The Secular Trends or Trends

(2) The Seasonal Trends
(3) The Irregular Trends
(4) Cyclic Trends

The trend (long term direction), the seasonal (systematic, calendar related movements) and
the irregular (unsystematic, short term fluctuations), the cyclic (the long term variation).

The Secular Trends

The most popular and easily identified component of Time Series Analysis is Secular trends.
There are four methods to measuring the trends of the time series data:

(1) Freehand Curve Method

(2) Semi-Average Method
(3) Moving-Average Method
(4) Least-Square Method

The Freehand Curve, Semi-Average and Moving Average are used to removes the short-term
changes, which are sometimes called Smoothing the series, and are used to study the long-
term changing over the long term period. While in the Least-Square method, we use the some
Algebraic Equations that can be fitted to be observations.
EXP: Find the semi-average of the following data:
(a)
YEAR 2010 2011 2012 2013 2014 2015
X 0 1 2 3 4 5
PRODUCTION 3 7 5 8 12 13

(b)
YEAR 2010 2011 2012 2013 2014
X 0 1 2 3 4
PRODUCTION 3 7 5 8 12

Solution (a)

YEAR X Production Semi-Average

2010 0 3
2011 1 7 (3 + 7 + 5)/3 = 5
2012 2 5
2013 3 8
2014 4 12 (8 + 12 + 13)/3 = 11
2015 5 13

Solution (b)

YEAR X Production Semi-Average

2010 0 3
2011 1 7 (3 + 7 + 5)/3 = 5
2012 2 5
2013 3 8 (5 + 8 + 12)/3 = 25/3 = 8.3
2014 4 12

EXP: Compute (i) 3-years Moving Average, (ii) 7-years Moving Average for the data of
annual prices of the Rubber-Tire corporation:

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Price 52 58 61 55 43 35 28 26 32 52 63 55 36 23

Solution
Year Price 3-years Moving 3-years Moving 7-years Moving 7-years Moving
Total Average Total Average
2000 52
2001 58 171 57
2002 61 174 58
2003 55 159 53 332 47.4
2004 43 133 44.3 306 43.7
2005 35 106 35.3 280 40
2006 28 89 29.6 271 38.7
2007 26 86 28.6 268 38.3
2008 32 110 36.6 288 41.1
2009 52 147 49 291 41.6
2010 63 170 56.6 264 37.7
2011 55 154 51.3
2012 36 114 38
2013 23