Time-series Forecasting -Complete Tutorial | Part-1

BE G I NNE R D AT A S C I E NC E M A C HI NE LE A RNI NG PYT HO N T I M E S E RI E S F O RE C A S T I NG

This article was published as a part of the Data Science Blogathon

Introduction

A time series is a sequence of observations recorded over a certain period of time. A simple example of
time series is how we come across different temperature changes day by day or in a month. The tutorial
will give you a complete sort of understanding of what is time-series data, what methods are used to
forecast time series, and what makes time series data so special a complex topic in the field of data
science.

Table of Contents

Basics of Time-series Forecasting

Rolling statistics and stationarity in Time series
Additive and Multiplicative Time-series
Exponential Smoothing in Time Series
Practicals with Time-Series data
Exponential Smoothing Practicals
Time series decomposition and stationarity check
 End Notes

Basics of Time-Series Forecasting

Timeseries forecasting in simple words means to forecast or to predict the future value(eg-stock price)
over a period of time. There are different approaches to predict the value, consider an example there is a
company XYZ records the website traffic in each hour and now wants to forecast the total traffic of the
coming hour. If I ask you what will your approach to forecasting the upcoming hour traffic?

A different person can have a different perspective like one can say find the mean of all observations, one
can have like take mean of recent two observations, one can say like give more weightage to current
observation and less to past, or one can say use interpolation. There are different methods to forecast the
values.

while Forecasting time series values, 3 important terms need to be taken care of and the main task of time
series forecasting is to forecast these three terms.

1) Seasonality

Seasonality is a simple term that means while predicting a time series data there are some months in a
particular domain where the output value is at a peak as compared to other months. for example if you
observe the data of tours and travels companies of past 3 years then you can see that in November and
December the distribution will be very high due to holiday season and festival season. So while forecasting
time series data we need to capture this seasonality.

2) Trend

The trend is also one of the important factors which describe that there is certainly increasing or
decreasing trend time series, which actually means the value of organization or sales over a period of time
and seasonality is increasing or decreasing.
3) Unexpected Events

Unexpected events mean some dynamic changes occur in an organization, or in the market which cannot
be captured. for example a current pandemic we are suffering from, and if you observe the Sensex or nifty
chart there is a huge decrease in stock price which is an unexpected event that occurs in the surrounding.

Methods and algorithms are using which we can capture seasonality and trend But the unexpected event
occurs dynamically so capturing this becomes very difficult.

Rolling Statistics and Stationarity in Time-series

A stationary time series is a data that has a constant mean and constant variance. If I take a mean of T1
and T2 and compare it with the mean of T4 and T5 then is it the same, and if different, how much
difference is there? So, constant mean means this difference should be less, and the same with variance.

If the time series is not stationary, we have to make it stationary and then proceed with modelling. Rolling
statistics is help us in making time series stationary. so basically rolling statistics calculates moving
average. To calculate the moving average we need to define the window size which is basically how much
past values to be considered.

For example, if we take the window as 2 then to calculate a moving average in the above example then, at
point T1 it will be blank, at point T2 it will be the mean of T1 and T2, at point T3 mean of T3 and T2, and so
on. And after calculating all moving averages if you plot the line above actual values and calculated moving
averages then you can see that the plot will be smooth.

This is one method of making time series stationary, there are other methods also which we are going to
study as Exponential smoothing.

Additive and Multiplicative Time series

In the real world, we meet with different kinds of time series data. For this, we must know the concepts of
Exponential smoothing and for this first, we need to study types of time series data as additive and
multiplicative. As we studied there are 3 components we need to capture as Trend(T), seasonality(S), and
Irregularity(I).

Additive time series is a combination(addition) of trend, seasonality, and Irregularity while multiplicative
time series is the multiplication of these three terms.
 

Time series Exponential Smoothing

Exponential smoothing calculates the moving average by considering more past values and give them
weightage as per their occurrence, as recent observation gets more weightage compared to past
observation so that the prediction is accurate. hence the formula of exponential smoothing can be defined
as.

         yT = α * XT + α(1−α) * yT−1

Alpha is a hyperparameter that defines the weightage to give. This is known as simple exponential
smoothing, But we need to capture trend and seasonality components so there is double exponential
smoothing which is used to capture the trend components. only a little bit of modification in the above
equation is there.

        Yt =  α * Xt + (1-α) (yt-1 + bt-1)  #trend component

        where, bt = beta * (Yt – Yt-1) +  (1-beta) * bt-1

hence here we are taking 2 past observations and what was in the previous cycle, which means we are
taking two consecutive sequences, so this equation will give us the trend factor.

If we need to capture trend and seasonality for both components then it is known as triple exponential
smoothing which adds another layer on top of trend exponential smoothing where we need to calculate
trend and seasonality for both.

        Y = alpha * (Xt / Ct-1) + (1 – alpha)*(Y t-1 + bt-1)

       where, ct = gamma * (xt/yt) + (1-alpha) * ct-alpha

here we are capturing trends as well as seasonality. Using smoothing we will be able to decompose our
time series data and our time-series data will become easy to work with because in real-world scenarios
working with time series is a complex task so you have to adopt such methods to make the process
smooth.

Practicals with Time series forecasting

It’s time to make our hands dirty by implementing the concepts we have learned so far till now from start.
we will implement Moving average, exponential smoothing methods and compare them with an original
distribution of data.

Exponential smoothing practicals

The dataset we are using is electricity consumption time series data and you can easily find it on Kaggle
from here.

step-1) Load the data first

import numpy as np # linear algebra import pandas as pd import matplotlib.pyplot as plt from
statsmodels.tsa.api import ExponentialSmoothing, SimpleExpSmoothing, Holt from pylab import rcParams

rcParams["figure.figsize"] = 20,5 df = pd.read_csv("Electric_Production.csv", header=0, index_col=0)

plt.plot(df[1:50]["Value"]) plt.xticks(rotation=30) plt.show()

Step-2) Moving Average method

we have seen how to calculate moving average using a window, same applies to our dataset and we will get
rolling statistics and find its mean. after the mean, if we plot the graph then you can see the difference in
smoothing of a graph as the original.

rollingseries = df[1:50].rolling(window=5) rollingmean = rollingseries.mean() #we can compute any statistical

measure #print(rollingmean.head(10)) rollingmean.plot(color="red") plt.show()
Step-3) Simple Exponential Smoothing

Now as we have seen in simple exponential smoothing has a parameter known as alpha which defines how
much weightage we want to give to recent observation. we will fit 2 models, one with high value and one
with less value of alpha, and compare both.

data = df[1:50] fit1 = SimpleExpSmoothing(data).fit(smoothing_level=0.2, optimized=False) fit2 =

SimpleExpSmoothing(data).fit(smoothing_level=0.8, optimized=False) plt.figure(figsize=(18, 8))

plt.plot(df[1:50], marker='o', color="black") plt.plot(fit1.fittedvalues, marker="o", color="b")

plt.plot(fit2.fittedvalues, marker="o", color="r") plt.xticks(rotation="vertical") plt.show()

Step-4) Holt method for exponential smoothing

Hot’s method is a popular method for exponential smoothing and is also known as Linear exponential
smoothing. It forecast the data with the trend. It works on three separate equations that work together to
generate the final forecast. let us apply this to our data and experience the changes. In the first fit, we are
assuming that there is a linear trend in data, and in the second fitting, we are having exponential
smoothing.

fit1 = Holt(data).fit() #linear trend fit2 = Holt(data, exponential=True).fit() #exponential trend

plt.plot(data, marker='o', color='black') plt.plot(fit1.fittedvalues, marker='o', color='b')

plt.plot(fit2.fittedvalues, marker='o', color='r') plt.xticks(rotation="vertical") plt.show()
You can observe that linear trend means blue plot does not fit fine, and following the original plot whereas
red plot is an exponential smoothing plot. This is a simple smoothing with the holt method, we also add
parameters like alpha, trend component, seasonality component.

Decomposition and stationarity check practicals

Now we will work and check which type of time series data we have, whether it is additive or multiplicative.
We will use a different dataset from above and it is known as drug sales data which you can download
from here.

Step-1) Load dataset

If you observe the above plot then we can see the upward trend in the data, but we cannot see any kind of
special seasonality.

from statsmodels.tsa.seasonal import seasonal_decompose from dateutil.parser import parse import pandas as pd
DrugSalesData = pd.read_csv('TimeSeries.csv', parse_dates=['Date'], index_col='Date')
DrugSalesData.reset_index(inplace=True) import matplotlib.pyplot as plt

plt.rcParams.update({'figure.figsize': (10,6)}) plt.plot(DrugSalesData['Value'])

Step-2) Decomposition of time-series data

Now we will decompose time series data into multiplicative and additive and visualize the seasonal and
trend components that they have extracted.

# Additive Decomposition add_result = seasonal_decompose(DrugSalesData['Value'], model='additive',period=1) #

Multiplicative Decomposition mul_result = seasonal_decompose(DrugSalesData['Value'],

model='multiplicative',period=1)

We imported the seasonal decompose function from the stats model and pass both the model as
multiplicative and additive. Now let us visualize the result of each model one by one. first plot the results
of the Additive time series.

add_result.plot().suptitle('nAdditive Decompose', fontsize=12) plt.show()

If you observe the plots you will get 4 plots, two for trend, one for seasonality, and one for residual. We can
see that trend is of course there using both time methods and seasonality is zero.

Now we also want to see the actual value of trend and seasonality, how much it has been calculated. so we
will prepare the dataframe of four columns which will have a value for each plot. let us make of additive,
and you can try will multiplicative in the same way.

new_df_add = pd.concat([add_result.seasonal, add_result.trend, add_result.resid, add_result.observed],

axis=1) new_df_add.columns = ['seasoanilty', 'trend', 'residual', 'actual_values'] new_df_add.head()

 
Step-3) ADfuller test for stationary

Stationary is constantly mean and constant variance. Adfuller is a simple test which tells that if the time
series is stationary which is a kind of hypothesis testing. The Null hypothesis is time series are non-
stationary. If the p-value is less than 5 percent then reject the NULL hypothesis else accept the NULL
hypothesis.

from statsmodels.tsa.stattools import adfuller adfuller_result = adfuller(DrugSalesData.Value.values,

autolag='AIC') print(f'ADF Statistic: {adfuller_result[0]}') print(f'p-value: {adfuller_result[1]}') for key,

value in adfuller_result[4].items(): print('Critial Values:') print(f' {key}, {value}')

P-value is greater than 5 per cent, which means we cannot build a model on Non-stationary data so we
have to make the time series stationary. Now to make time-series stationary there are different methods
like autoregression with ACF, PACF, etc which we will cover in the second part of this article.

End Notes

We have seen what is time-series data, what makes time-series analysis a special and complex task in
Machine learning. We also perform practicals on how to start working with time series data and how to
perform various analyses and drive inferences from it. In the upcoming part, we will discuss various
methods to make time-series stationary and we will also discuss various time series classical models like
ARIMA, SARIMA, etc.

I hope it was easy to follow till the end, I know it’s a little complex to handle time-series data But after
having a look through this article you got some sort of understanding and confidence that you can handle
time-series data. If you have any queries, please post them in the comment section below.

About the Author

Raghav Agrawal

I am pursuing my bachelor’s in computer science. I am very fond of Data science and big data. I love to
work with data and learn new technologies. Please feel free to connect with me on Linkedin.

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