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This EWMA formula shows the value of the moving average at a time t.
This formula states the value of moving average at time t. Here, a parameter
shows the rate at which it will calculate the older data. The value of a will be
between 0 to 1.
Suppose a=1 means only the most recent data used to measure EWMA. If a is
nearing 0, that means more weightage is to older data. If a is near 1, newer data
has given more weightage.
Examples of EWMA
1 40
2 45
3 43
4 31
5 20
So EWMA(1) = 40
EWMA for time 2 is as follows
Temperature oc (x)
Weekday (t)
Sunday 24
Monday 30
Tuesday 36
Wednesday 25
Thursday 22
Friday 29
Saturday 30
Using a =10%, we will find an exponentially weighted moving average for each day in the
below table:
Below is the graph showing a comparison between the actual temperature and EWMA
One can find average using an entire history of data or output. All other charts
tend to treat each data individually.
Users can give weightage to each data point at their convenience. One can
change this weightage to compare various averages.
EWMA displays the data geometrically. Because of that, data doesn’t get affected
much when outliers occur.
Each data point in the Exponentially Weighted Moving Average represents a
moving average of points.
Limitations
Important Points
We want to get an exponentially weighted moving average for data that we want
to be time ordered.
It is beneficial in reducing noise in noisy time series data points, which can be
called smooth.
Each output is given a weightage. The more recent data is, the highest weightage
it will get.
It is quite good at detecting smaller shifts but slower at detecting large ones.
One can use it when the subgroup sample size is greater than 1.
One can use this method in chemical and day-to-day accounting processes in the
real world.
One can also use it to show website visitors’ fluctuations on days of the week.
Conclusion
EWMA is a tool for detecting smaller shifts in the mean of the time-bound
process. An exponentially weighted moving average is also highly studied and
used as a model to find a moving average of data. It is also very useful in
forecasting the event based on past data.