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Development Team: Environmental Sciences
Development Team: Environmental Sciences
Development Team
Prof. R.K. Kohli
Principal Investigator
& Prof. V.K. Garg &Prof.AshokDhawan
Co- Principal Investigator
Central University of Punjab, Bathinda
Module Id EVS/SAES-XIV/37
To give method of measurement of seasonal, cyclic and irregular component with their examples
Objectives
including merits and demerits.
Keywords Time series, seasonal, cyclic and irregular component, average, moving average
1. Learning Objectives
Introduction to the Time series and its components of the time series were discussed in the module
named as “Introduction to the time series and its importance”. Measurement of secular trend was
discussed in the module named as “Measurement of the secular trend”. Now we will discuss the
measurement of seasonal, cyclic and irregular variation. These types of variation will be discussed in
this module with examples and merits / demerits of the measurement methods.
2. Introduction:
Measurement of time series components means to identify the components, isolate the components and
eliminate the components. The components of time series like seasonal, cyclic and irregular has already
been discussed in other modules. One can visit the module “Introduction to the time Series and its
importance” to recall about the components of time series. In this module, our main concern is, if one
can detect the components of time series in the data then what to do next. One must apply some methods
to measure or eliminate them. Hence in this module, measurement methods for seasonal, cyclic and
irregular components are discussed one by one.
In this module, first we will discuss methods of measurement for seasonal variation. As seasonal is a
component of time series that prevails for a short time period so most of measurement methods for
seasonality can only be applied on the data whose values are available after a short time periods like
monthly, quarterly etc.
In the next session, methods for the measurement of different components will be discussed in steps. As
lot of mathematical calculations are required to find out these values, thus one should be aware of basic
terms like sum, average, proportion etc.
3.1 Method of simple average: This is the easiest and simplest method to measure the seasonal
variations. To find out the simple average one has to follow the steps.
Steps for calculating seasonal variation indices are:
● Arrange the observations in quarterly/ monthly/ yearly manner according to the requirement of
study variable or availability of the data.
Calculate the average values of observations for all quarters / months/ years over different years.
Now calculate the quarterly/ monthly/ yearly (seasonal) average values. To find out average of
quarterly/ monthly values, divide total of quarterly/monthly values by 4 / 12 to get seasonal
average values respectively.
seasonal average
Seasonal index for ith year = × 100
total of the seasonal average
● Note that total of seasonal indices for quarter must be equal to 4*100 i.e. 400 and for months, it
must be 12*100 i.e.1200.
● Note that seasonal here represents quarter or month. There are four quarter and twelve months
in a year.
Next, we will discuss an example of sales of bicycle to compute the seasonal indices using simple
average method.
Example 1: Sale of bicycles (in lac.) from year 2012-2017 are given in the Table 1. Compute the
seasonal indices using method of simple average (hypothetical data).
Table 2
One can observe that last column shows seasonal indices and total of seasonal indices is 400.
This method is very simple but it is used less to calculate seasonal indices. This method is based on the
assumption that data doesn't contain any trend and cyclic component. The major important factor by
using this method is that irregular component eliminates by averaging seasonal indices that can be
quarterly or monthly. This assumption is not really true in economic sector hence this method can't be
used in all sectors in an efficient manner.
∑ 𝑦𝑖 = 𝑛𝑎 + 𝑏 ∑ 𝑥𝑖 ;
∑ 𝑥𝑖 𝑦𝑖 = 𝑎 ∑ 𝑥𝑖 + 𝑏 ∑ 𝑥𝑖2 .
One can solve the above equations to find out the values of 𝑎 and 𝑏 by putting values of
∑𝑥𝑖 𝑦𝑖 , ∑𝑥𝑖2 and ∑𝑦𝑖 , 𝑖 = 1,2, … , 𝑛 and 𝑛 represents number of observations.
∑ 𝑦𝑖 280
𝑎= = = 56 ;
𝑛 5
∑ 𝑥𝑦 120
𝑏= = = 12.
∑ 𝑥2 10
Hence, the straight line trend is:
𝑦𝑡 = 56 + 12𝑥.
Here, yearly increment in trend equation is 𝑏 i.e.12. The positive value of 𝑏 implies that there is an
increasing trend in the data.
To compute quarterly increment divide 𝑏 by 4 i.e. 12/4 which is 3.
Computation of seasonal indices
Trend values are computed for the quarters using trend line equation. Using the trend line
equation the value for the year 2013 is 32 which is in between of the half of second and third
quarter value. So trend value for second and third quarter is 32-1.5 and 32+1.5 respectively. For
first quarter and fourth quarter is 30.5-3 and 33.5+3 respectively. Similarly compute trend values
for 2014, 2015,….., 2017.
Trend eliminated values can be find by dividing original quarterly values to trend quarterly
values.
Trend eliminated value for 2013:
For 1st quarter = (30/27.5) × 100 = 109.1
For 2nd quarter = (40/30.5) × 100 = 131.1
For 3rd quarter = (36/33.5) × 100 = 107.5
For 4th quarter = (34/36.5) × 100 = 93.1
Similarly one can find values for 2013, 2014,….,2017. All these values having no trend are known as
seasonal indices.
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These new seasonal indices are known as adjusted seasonal indices and sum of adjusted seasonal
indices is 400 for quarterly data.
Merits and demerits:
This method is an improvement over the method of simple average. This method is based on the
assumption that seasonal variation is a constant factor for the trend. So in this method trend remains in
the data and it removes cyclic,irregular components from the data.
3.3 Ratio to moving average method:
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Example 3: Sales of refrigerator (in thousand) from year 2009 to 2011 are shown in Table 6, compute
seasonal indices by using ratio to moving average method (Hypothetical data).
year 1st quar 2nd quar 3rd quar 4th quar
2009 35 34 40 29
2010 21 25 26 28
2011 30 35 36 22
Table 6
Solution: To compute seasonal indices by ratio to moving average method for the given example of
sales of refrigerator, first calculate moving average and then compute ratio to moving average.
Calculate moving average:
Here, we are calculating moving average for even period i.e. 4. Add first four values and place it middle
of the 2 and 3 quarter for year 2009. Next four, place it middle of 3 or 4 and so on until all observations
are covered.
To do centering of these values, add first two values and place it middle of these two values. Suppose
we add 138 and 124 , place it in front of 3 and similarly other also can find.
Now, take average of these 2 -period moving Total by dividing 2.
6th column of the following table shows 4-quarter moving average.
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2 34
138
2009 3 40 262 32.75 122.1374046
124
4 29 239 29.875 97.07112971
115
1 21 216 27 77.77777778
101
2 25 201 25.125 99.50248756
100
2010 3 26 209 26.125 99.5215311
109
4 28 228 28.5 98.24561404
119
1 30 248 31 96.77419355
129
2 35 252 31.5 111.1111111
2011 123
3 36
4 22
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ratio to moving average for 3rd quarter for year 2009 = (40/32.75) × 100 = 122.137.
Similarly, one can find ratio to moving average values for other years. These values of ratio to moving
average values are also known as seasonal indices.
Sum of average seasonal indices is 401.06, which is greater than 400. There is need for adjustment in
seasonal indices.
To do adjustment in seasonal indices, multiply average seasonal indices by correction factor k.
K = 400/401.06 = 0.9973
For 1st quarter, adjusted seasonal indices = 87.2755 × 0.9973 = 87.044
Similarly, one can find other adjusted seasonal indices.
Year 1st quart 2nd quart 3rd quart 4th quart Total
2009 - - 122.1374 97.07113
2010 77.777 99.502 99.521 98.245
2011 96.77419 111.111
Total 174.55119 210.613 221.6584 195.31613
average(S.I) 87.275595 105.3065 110.8292 97.658065 401.06936
adjusted
S.I. 87.0443147 105.027438 110.535503 97.3943882 400.001643
Table 8
From above table, one can see that sum of adjusted seasonal indices is 400. These are the seasonal
indices for the given example.
Merits and demerits:
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Link relative method is based on the averaging the link relatives. Link relatives is a percentage value of
one season with respect to previous season. Here season means time interval.
● Total of chain relatives are not equal to 400 for quarters and 1200 for months then there is a need
for correction. This correction will be done by subtracting correction factor to all chain relatives.
L. R. for season value × C. R. for last season
new C. R. for any season =
100
new C. R. for any season − 100
𝑑=
number of season
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Solution:
To compute link relatives for values given in Table 9 for any season i.e. quarter. Starting with
first value, one cannot compute link relative for first observation because there is no value
available preceding this value.
So start with second value to compute link relative, then using 1st quarter value with respect to
2002 link relative = (12/20)×100 = 60, then using 1st quarter value with respect to 2003, link
relative = (23/12) × 100 = 191.6666.
Similarly, one can find link relatives for other values till all values are covered.
After finding link relatives for all values, take quarterly average of link relatives. These values
are denoted as average link relative.
Now, convert average link relative into chain relatives by using the formula given in the theory
for calculating chain relatives for any season.
First chain relative is always 100; second relative for second quarter = (85.2970×100)/100 =
85.2970; third chain relative for 3rd quarter = (125.744×85.29705)/100 = 107.255; fourth chain
relative for 4th quarter = (104.160×107.255)/100 = 112.717.
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Take average for all adjusted chain relatives, to compute seasonal indices.
Average of adjusted chain relatives = (100+77.15305+90.967+87.2859)/4 = 88.8514
Seasonal indices can be calculated by using formula of seasonal indices.
Seasonal indices for first quarter = (adjusted chain relatives/average of adjusted chain
relatives×100 = (100/88.8514) × 100 = 112.547; for 2nd quarter = (77.153/88.8514)×100=
86.8334.
Similarly, one can find for other 3rd and 4th quarter.
year 1st 2nd 3rd 4th 1st quart 2nd quart 3rd quart 4th quart Total
quart quart quart quart
Table 10
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Link relatives are more complicated as compared to ratio to moving average method but these two
methods are based on the same assumption and also have same results. The major benefit of this method
over the ratio to moving average is due to less loss of information as compared to ratio to moving average
method. This is the main reason that ratio to moving average method is widely used method in practice.
4 De-seasonalization:
De-seasonalization is mostly used to remove the effect of seasonality in the study variable. It is also
helpful for the interpretation of the data. Assuming multiplicative model, de-seasonalization can be done
by divide trend value tothe seasonal value.
𝑦 𝑇x𝐶x𝑆x𝐼
deseasonlisation for multiplicative model = = 𝑇x𝐶xI
𝑆 𝑆
deseasonlisation for additive model 𝑌 − 𝑆 = 𝑇 + 𝐶 + 𝐼.
Hence one can leave with trend, cyclic and irregular component in the data.
5 Measurement of cyclic variation:
Cyclic variation exists in the data when tendency of the data increases and decreases in a given period
but time period is not fixed for cyclic variation.
Residual method is most commonly used for measuring the cyclic variation. For measurement of cycle
variation first calculate seasonal and trend components then remove seasonal, trend component and
irregular component. Irregular component is just like an error term like the previous knowledge which
cannot be directly eliminated. To eliminate irregular component moving average method is used. This
method of elimination of the irregular component is known as smoothing of irregular component.
a) Divide time series values (Y) by trend (T) and seasonal estimated value (S), get cyclic (C) and
random component (R).
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One can refer to the text in the references to know about them. In this module, we try our best to give
you an understanding about the methods and techniques that are used to eliminate seasonal variation
from the data.
Irregular component is the last component, also known as error term of the time series. An error term
can't be eliminate fully from any time series because this happens due to natural forces.
There are no methods available to measure this component in literature. But this component can be
removed little bit by averaging of the indices. If there is multiplicative model of time series then it can
be removed by dividing all other components to the irregular component. If there is additivemodel then
it can be removed by subtracting all components to their regular component.
7 Summary
In this module, the measurement of seasonal, cyclic and irregular variation are discussed. These types
of variation are discussed in this module with examples and merits / demerits of various measurement
methods in detail.
8 Suggested Readings
Gupta, S. C. and Kapoor, V. K., Fundamentals of Applied Statistics, Sultan Chand & Sons, New Delhi,
2009.
Gupta, S. P., Statistical Methods, Sultan Chand & Sons, New Delhi, 2012.
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