3. Moving Average method: The method of moving average is very simple method.

We obtain
trend values with a fair degreeof accuracy by eliminating fluctuation. It is also based on arithmetic
mean. The demerits of arithmetic mean do not afect because here we get many averages while
 ssO oeries

arithfor tic
mean, we have
value
number
number ot
a
of only one
years or monthe
of the time-spanyears
en ( months average. In
in the 599
or iddle period.
or
period of weeks is takenmoving
It is averag
average
into count; method, the average
es the calculated moving and it acco
duced. analysis average)
Si and from and placing it at the
is also reduced removes
Moving average can periodic overlapping groups of
is the
normal trend value or
the movin1
average be
the cyclical period coincides withcalculated
successiveofnthe
variations; and the influen ience
curve o r
for 3, 4, 5, luctuations
entirely removedfluctuations
fro the
period 6, 7, 8 9
yearly
from the eliminated fromof the cycle, then it will give perio
not be are or
If
length So we ust take time series. time series a smoo th

calculating 3 yearly moving average Cyclical otherwise the cycle will

moving average is asperiod from 3 tofluctua
uations are not
9 for
busin
having uniform
follows:Isiness series. The formula

The formula for 5

a+b+c
3
b+c+d c+d+e
yearly moving average is
3 3

atb+c+d +e b+c+d+e+f c+d

Steps for calculating odd number
5 +e+1+8
of years
If we want to calculate the
(3, 5, 7, 9)
three-yearly moving average,
Compute the value of first three then:
year (.e., 2nd year). years (1, 2, 3) and place the three year total
2 Leave the first against the middle
year's
Value and add
up the values of the next
place the three-year total three years i.e. 2, 3, 4 and
3. This process must be
against the middle
year i.e., 3rd year.
continued until the last
average year's value is taken for caiculating
moving
4. The
three-yearly total must be divided by 3 and
placed in the next column. This is the trend
value of moving
average.
if the trend value is
plotted on a graph,
it will give us the trend.
llustration 15.4: Calculate three yearly moving average of the following data
Year
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
No. of students 15 18 17 20 23 25 29 33 36 40
Solution: Calculation of 3 Yearly Moving Averages

Year No. of Students 3 yearly Total Moving Average

1998 15
1999 18 50 16.7
2000 17 55 18.3
60 20.0
2001 20
68 22.7
2002 23
25 T 25.7
2003
87 29.0
2004 32.7
98
2005 33
109 36.3
2006
2007
600 Statistics Theory and Prachoa

Illustration 15.5: The following figures relate to the profits ofa commercial concem for 8 vears

Year: 2000 2001 2002 2003 2004 2005 2006 2007

(Profits Rs.): 15,420 14,470 15,520 21,020 26,120 31,950 35,370 34,670
Find the trend of profits by the method of moving averages (B.Com. Osmania)
Solution: Calculation of 3 Yearly Moving Averages

Year Profits 3 yearly moving total 3 yearly moving averages

(Trend of profits) Rs
2000 15,420
2001 14,470 45,410 15,137
2002 15,520 51,010 17,003
2003 21,020 62,660 20,887
2004 26,120 79,090 26,363
2005 31,950 93,440 31,147
2006 35,370 ,01,990 33,997
2007 34,670
Even period of moving average: If the period of moving average is 4, 6 or 8, it is an even
number. The four-yearly total cannot be placed against any year as the median 2.5 is between
the second and the third year. So the total should be placed in between the 2nd and 3rd years
We must centre the moving average in order to place the moving average against an year
The steps are
1. Compute the values of the first four years and place the total in between the 2nd and tne
3rd years.
2. Leave the first year value and compute the value of the next four years and place the 0an

in between the 3rd and 4th year.

3. This process must be continued until the last year is taken into account.
4. Compute the first two four-year totals and place it against the middle year (ie., ard yea
S. Leave the first four year total and compute the next four-year total and place in the 4tn yea
6 This method must be continued until all the four-yearly totals are computed
7. Divide the above totals by 8 (because it is the total of the two four-yearly totals) anu put
in the next coBumn. This is the rend value.
 Time Series
sis of 601
ration 15.6:. Assuming a our-yearly cycle calculate the trend by the method of movinE
from the
the following data relating to the
vera
ges production of tea in India.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
e r

Production

(in million lbs) 464 515 518 612

467 502 540 557 571 586
(.C.WA.)
Solution:

Trend Method of
Moving Average
lear
Production 4 yearly total Add in pairs 4 yearly col moving
(2) (3) (4) 4-8 average
464
1998
1999
515
1964
495.8
2000 518 2002 3966
503.6
467 4029
2001
2027
511.6
502 4093
2002
2066
4236 529.5
2003 540
2170
4424 553.0
2004 557
2254
4580 572.5
2005 571
2326
2006 586
2007 612
Method method of
Meritsof Moving Average easier to adopt when compared to the
understand. It is
1.It is simple and easy to
that few more items may
least square. It is flexible in
the sense a

. ltis more flexible than other methods. the trend values already obtained. When more

without affecting
added to the given data,
De more trend
values.
the measurement
of seasonal,
ems are added, we get but also for
measurement of trend,
t I s not only used for the
fluctuations. not by the personal judgment
and irregular the data and
cical determined by
is
period of moving
average bias.
from personal
of the nvestigator So it is away trend
Deme
merits of Moving Average
Method

the trend
values for all
moving
the
average;
In finding
given
observations.

and we leave
the
Int cannot get in three-yearly
IS method we
last year
in
value we leave the first and the five yearly
moving average. future values,
in o r predicting
first two andthe last two years
it is
is that
for forcasting
used function.
2. The mai value mathematical

object of trend represented by a

because this
this method is not
602 Statistics Theory and Practice
3. There is rule regarding the choice of the number of the moving average, and so the
no
statistician has to use his own judgement.
4. In
most of the economic and business time series the trend is a non-linear one; then the
moving average lies below or above the curve of the actual data.
Due to these limitations, this method can be used when
1. the trend is linear or
approximately linear
2. the oscillatory movements are regular, both in period and amplitude.
3. The future of forecasting and current analysis is not required.