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Analysis > Components of Time Series

Time Series Analysis

Components of Time Series

You may have heard people saying that the price of

a particular commodity has increased or decreased
with time. This commodity can be anything like
gold, silver, any eatables, petrol, diesel etc. Also,
you may have heard that the rate of interest has
increased in banks. The rate of interest for home
loans has decreased. What are all these? How are
they useful to us? These types of data are the time
series of data. In this section, we will study about
time series and the components of the time series
and time series analysis.

Table of content

1 Suggested Videos
2 Time Series
2.1 Uses of Time Series
3 Components for Time Series Analysis
4 Trend
4.1 Linear and Non-Linear Trend
5 Periodic Fluctuations
5.1 Seasonal Variations
5.2 Cyclic Variations
6 Random or Irregular Movements
7 Mathematical Model for Time Series
Analysis
7.1 Additive Model for Time Series Analysis
7.2 Multiplicative Model for Time Series
Analysis
7.3 Mixed models
8 Solved Example on Time Series Analysis

Suggested Videos

Tally Marks Method H

Time Series
How do people get to know that the price of a
commodity has increased over a period of time?
They can do so by comparing the prices of the
commodity for a set of a time period. A set of
observations ordered with respect to the successive
time periods is a time series.

In other words, the arrangement of data in

accordance with their time of occurrence is a time
series. It is the chronological arrangement of data.
Here, time is just a way in which one can relate the
entire phenomenon to suitable reference points.
Time can be hours, days, months or years.

A time series depicts the relationship between two

variables. Time is one of those variables and the
second is any quantitative variable. It is not
necessary that the relationship always shows
increment in the change of the variable with
reference to time. The relation is not always
decreasing too.

It may be increasing for some and decreasing for

some points in time. Can you think of any such
example? The temperature of a particular city in a
particular week or a month is one of those
examples.

Uses of Time Series

The most important use of studying time

series is that it helps us to predict the
future behaviour of the variable based on
past experience

It is helpful for business planning as it

helps in comparing the actual current
performance with the expected one

From time series, we get to study the

past behaviour of the phenomenon or the
variable under consideration

We can compare the changes in the

values of different variables at different
times or places, etc.

Components for Time Series

Analysis
The various reasons or the forces which affect the
values of an observation in a time series are the
components of a time series. The four categories of
the components of time series are

Trend

Seasonal Variations

Cyclic Variations

Random or Irregular movements

Seasonal and Cyclic Variations are the periodic

changes or short-term fluctuations.

Trend
The trend shows the general tendency of the data to
increase or decrease during a long period of time. A
trend is a smooth, general, long-term, average
tendency. It is not always necessary that the
increase or decrease is in the same direction
throughout the given period of time.

It is observable that the tendencies may increase,

decrease or are stable in different sections of time.
But the overall trend must be upward, downward or
stable. The population, agricultural production,
items manufactured, number of births and deaths,
number of industry or any factory, number of
schools or colleges are some of its example
showing some kind of tendencies of movement.

Linear and Non-Linear Trend

If we plot the time series values on a graph in

accordance with time t. The pattern of the data
clustering shows the type of trend. If the set of data
cluster more or less round a straight line, then the
trend is linear otherwise it is non-linear
(Curvilinear).

Periodic Fluctuations
There are some components in a time series which
tend to repeat themselves over a certain period of
time. They act in a regular spasmodic manner.

Seasonal Variations

These are the rhythmic forces which operate in a

regular and periodic manner over a span of less
than a year. They have the same or almost the same
pattern during a period of 12 months. This variation
will be present in a time series if the data are
recorded hourly, daily, weekly, quarterly, or
monthly.

These variations come into play either because of

the natural forces or man-made conventions. The
various seasons or climatic conditions play an
important role in seasonal variations. Such as
production of crops depends on seasons, the sale of
umbrella and raincoats in the rainy season, and the
sale of electric fans and A.C. shoots up in summer
seasons.

The effect of man-made conventions such as some

festivals, customs, habits, fashions, and some
occasions like marriage is easily noticeable. They
recur themselves year after year. An upswing in a
season should not be taken as an indicator of better
business conditions.

Cyclic Variations

The variations in a time series which operate

themselves over a span of more than one year are
the cyclic variations. This oscillatory movement
has a period of oscillation of more than a year. One
complete period is a cycle. This cyclic movement is
sometimes called the ‘Business Cycle’.

It is a four-phase cycle comprising of the phases of

prosperity, recession, depression, and recovery. The
cyclic variation may be regular are not periodic.
The upswings and the downswings in business
depend upon the joint nature of the economic
forces and the interaction between them.

Random or Irregular
Movements
There is another factor which causes the variation
in the variable under study. They are not regular
variations and are purely random or irregular.
These fluctuations are unforeseen, uncontrollable,
unpredictable, and are erratic. These forces are
earthquakes, wars, flood, famines, and any other
disasters.

Mathematical Model for Time

Series Analysis
Mathematically, a time series is given as

yt = f (t)

Here, yt is the value of the variable under study at

time t. If the population is the variable under study
at the various time period t1, t2, t3, … , tn. Then the
time series is

t: t1, t2, t3, … , tn

yt: yt1, yt2, yt3, …, ytn

or, t: t1, t2, t3, … , tn

yt: y1, y2, y3, … , yn

Additive Model for Time Series Analysis

If yt is the time series value at time t. Tt, St, Ct, and

Rt are the trend value, seasonal, cyclic and random
fluctuations at time t respectively. According to the
Additive Model, a time series can be expressed as

yt = Tt + St + Ct + Rt.

This model assumes that all four components of the

time series act independently of each other.

Multiplicative Model for Time Series Analysis

The multiplicative model assumes that the various

components in a time series operate proportionately
to each other. According to this model

yt = Tt × St × Ct × Rt

Mixed models

Different assumptions lead to different

combinations of additive and multiplicative models
as

yt = Tt + St + Ct Rt.

The time series analysis can also be done using the

model yt = Tt + St × Ct × Rt or yt = Tt × Ct + St × Rt
etc.

Solved Example on Time

Series Analysis
Question: For which type of data the seasonal
fluctuations do not appear in a time series?

Solution: The seasonal variations do not appear in a

series of annual data.

Question: What does the term ‘long period of time’

in a trend depict?

Solution: The term ‘long period of time’ is a

relative term. It cannot be defined exactly. For
some cases, a period as long as a few years may not
be enough while in some cases a period as small as
a week is considered a long period of time. It is
totally dependent on the variable under study.

BROWSE

Time Series Analysis

Models of Time Series Analysis

Method of Least Squares

Method of Semi Averages

Calculation of Trend by Moving Average

Method

Components of Time Series

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