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ANALYSIS OF TIME SERIES

Time series is an arrangement of statistical


data in accordance with it’s time of
occurance.It shows the dynamic pace of
movement of a phenomenon over a period
of time.
e.g.
1. Annual production of wheat/rice
in India over a Number of Yrs.
2. Daily sales of Ansal Plaza.
3. The daily closing of price of a
share in the stock market
4.Profit earned by a company for each of
the past 10 yrs.
5.Number of MBA students enrolled in
last 5yrs etc…
In today’s changing Economic phases all
variables relating to Buz.,commerce and
Economics...Production,costs,profits,sales,
N.Y.,etc are directly affected by the course
of time.
THE STATISTICAL TECHNIQUE APPLIED
TO MEASURE THE TIME BASED DATA
OVER A PERIOD OF TIME IS KNOWN
AS TIME SERIES ANALYSIS.
MATHEMATICALLY :-
y=f(t)

y= value of the variable at time “t”


If the values of a variable over time period
t1,t2,t3…..tn are
y1 y2 y3….yn respectively then
t: t1 t2 t3…………..tn.
y: y1 y2 y3…………..yn.
Thus,time series has a bivariate Distribution,
One of the two variable will be (I.V.)
and the other(D.V.).

The value of “t” may be


yearly,monthly,weekly,daily,hourly.

TIME SERIES CONSISTS OF DATA


ARRANGED CHRONOLOGICALLY.
BASIC REQUIRMENTS OF TIME SERIES:-

1.HOMOGENITY OF DATA:-i.e. all the


terms/data in the time series must be related
to the same phenomenon.
2.LONG PERIOD:-
3.TIME GAPS:-Should be of equal intervals.
4.APPLICATION OF INTERPOLATION:-
In case there are gaps b/w the data these
should be made up by proper interpolation
to arrive at proper results.
ELEMENTS/COMPONENTS OF TIME
SERIES:-
It’s generally seen that the values of a time
series show various types of fluctuations
over a period of time which are caused by
multiple forces and reasons.These force
are also called as variations,the
pattern,the movements,the
elements,components of time series.
COMPONENTS OF
TIME SERIES

SECULAR
TREND/LONG SEASONAL CYCLICAL IRREGULAR
TERM VARIATIONS VARIATIONS VARIATIONS
VARIATIONS
SECULAR TREND
Refers to the general tendency of the time
series data to raise, reduce or remain
constant over a period of time.The secular
trend can be either upwards or
downwards.(Diag).
TYPES OF TREND
1.LINEAR TREND:-when the rate of gradual
growth/decline of a time series remains
constant in the long run.
Mathematically:-
Y(t)= a+bx
Y(t)=Trend value of a variable

X= time
a,b= constants(a=intercept of y
axis,b=slope of the line).(Diag)
2.NON LINEAR TREND:- When the long run
gradual growth/decline in a series is not at
a constant rate.
SEASONAL VARIATIONS
These periodic Movements in Buz. Activity
occurs at regular intervals i.e. every
year. As these occur during a period of
12 months they can be predicted fairly
accurately. These will be there if the data
are recorded quarterly, monthly, weekly,
daily, hourly, etc.
The amplitude will be different but
the time period will be same.
CAUSES:-
1.Natural factors:-these are weather,
seasons,climatic changes.
2.Man made conventions:-The changes in
habits, customs,fashion,conventions
(Diwali,dushera,Christmas,baishakhi).
The study of seasonal variations is of
utmost importance to
Buz.,producers,sales
managers etc in framing future policies
pertaining to purchase, production, sales,
advertising program.
CYCLICAL VARIATIONS
These cycles are generally repeated at
intervals ranging from 3-10 yrs.These
are caused by complex combinations of
forces affecting the equilibrium b/w
Demand and supply. These are also
called Buz.
Cycles as these are of longer durations
than 12 months.(Diag)
Prosperity,recession,depression,recove
ry:-
During prosperityOptimisim, high profits,
expansion, development,money demand
increase,”r” increases, transport facilities
decreases,Prices decreases,
unemployment increases…..Pessimism
increases.
IMPORTANCE OF CYCLICAL
VARIATIONS
1.Helps in formation of Buz. Policies.

2.Estimation of future behaviour which


results in arranging suitable safeguards.

3.Idea of Irregular fluctutations can be easily


studied.
DISTINGUISH BETWEEN CYCLICAL AND
SEASONAL VARIATIONS:-
1.Time period:-The duration of S.V. is one
year whereas that of C.V. it is greater than
one year.
2. Degree of accuracy:-C.V. can’t be
estimated accuarately,whereas S.V. can
be estimated with high degree of
accuracy.
3. Causes:-The main cause of S.V. are
Weather,customs,traditions,whereas the C.V.
are caused due to complex economic activities.
4.Calculations and measurement:-Both have
different methods form them.
5.Effect:-The shadow effects of C.V. influence the
Economy as well as Buz. Activity as a whole
where as the shadow effects of S.V. differ from
occupation to occupation.
6.Activities of Preceding period:-C.V. depends
upon the activities of preceding period whereas
the S.V. have origin the the year itself.It is
independent of the activities of preceding year.
IRREGULAR OR RANDOM
VARIATIONS
Also known as Residual, Episode,Erratic or
Accidental predictions. These don’t have any
pattern and are not repetitive. These results
from Non Recurring circumstances like…Wars,
Strikes,Lockout,Droughts,Tremors,Storms,Epi
demics etc…
The best can be done is to get rough estimates of
these variations and accordingly make
provisions for such abnormalities during
normal times in Buz.
ANALYSIS OF TIME SERIES:-

ANALYSIS OF TIME
SERIES

MULTIPLICATIVE
ADDITIVE RELATIONSHIP
RELATION
SHIP O=T+S+C+I
O=T*S*C*I`
Where O=Original data

T= Trend.
S=seasonal component.
C=Cyclical variations.
I =Irregular
variations.
MEASUREMENT OF TREND :-

TREND LINE

GRAPHIC(FRE
E HAND METHODS OF METHOD OF
LEAST SQUARES
CURVE MOVING SEMI
METHOD
FITTING AVERAGES AVERAGES
METHOD)
GRAPHIC METHOD
Simplest and most flexible method of
Estimating the trend.
Consist of first obtaining a HISTOGRAM by
plotting the time series value on a graph
paper and then drawing a free hand curve
through the points so that it correctly
shows the long term tendency of the data.
Shows a rising trend or a declining
trend.(Diag)
STEPS:-
• Plot the time series data on a graph.
• Examine the direction from the
information.
• According to the best personnel
judgments, draw a straight line which will
best fit to the data. This line will show the
direction of the trend.
POINTS TO CONSIDER:-
2. Curve should be smooth.
3. Number of Points above the Trend curve
should be more or less equal to the number of
points below it.
4. Sum of vertical deviations of the given points
above the trend line should be roughly equal to
the sum of vertical deviations of the points
below the trend line so that they may balance
each other.
5. Sum of the Squares of the vertical deviations
of the given points from the trend line is
Minimum as possible.
Prob:-
Fit a trend line to the following data by the
free hand curve method.
YEAR Production(Tonnes)
1988 40
1989 44
1990 48
1991 42
1992 46
1993 50
1994 46
1995 52
1996 59
Soln:- Diag.
Merits:-
• Simple and time saving
• No mathematical calculations.
• Very flexible method.Tells if the trend is
linear or non linear.
Demerits:-
• Highly subjective in nature.
• Dangerous to use for predictions.
METHODS OF SEMI AVERAGES
Here the whole data is divide into two equal
parts preferably with same number of
years. The averages of each part is
calculated and then a trend line through
these averages is calculated.
a) Even Number of years:-
Prob:-Production from the 1999-2006 is
given. Fit a trend line.
Year 99 00 01 02 03 04 05 06
Prod 10 12 18 20 20 25 23 32
(Tonnes)
Year X Y AVERAGE
1999 0 10
2000 1 12
2001 2 18 Average=60/4=15
2002 3 20
2003 4 20
2004 5 25 Average=
2005 6 23 100/4=25
2006 7 32
• The Average of 1999-2002 is 15 (b/w
2000-2001)
• The Average of 2003-2006=25. (b/w
2004-2005)
• These points are joined by a straight line ,
which is semi variable trend line(Diag.)
b)Odd Numbers of years:-Here either the
middle year is excluded or the series may
be split into unequal parts. If in the series
one particular year has been abnormal
year, it is advisable to omit that year to
make trend line more realistic.
Prob:-Fit a trend line by Semi Avg. method.
Also find trend values.

Yr 2000 2001 2002 2003 2004 2005 2006

Sales 51 54 57 55 54 56 58
(000)
Sol:-Here middle year shall be left out and
the Av. Of 1st 3yrs and last 3yrs shall be
obtained.i.e.

2000-2002 =51+54+57/3 =54


2004-2006 =54+56+58/3 =56
Thus we get 2 pts 54 and 56. By joining
these 2pts we shall obtain the required
trend line.This can be used for Prediction.
COMPUTATION OF TREND VALUES:-
The trend values (Yc) can be computed
from the annual change.
Annual change = Diff. in Semi-Av
values/Diff. in 2yrs to which S.A.V.
belongs
= 56-54/2005-2001 = 2/4 =0.5
On this basis we can compute the trend line
of Sales.The trend values are
Yr 2000 2001 2002 2003 2004 2005 2006

Sales 53.5 54 54.5 55 55.5 56 56.5


(000)
MERITS:-
• EASY TO UNDERSTAND AND TO
APPLY.
• LINE CAN BE EXTENDED TO OBTAIN
FUTURE ESTIMATES.
DEMERITS:-
• ASSUMES STRAIGHT LINE
RELATIONSHIP WHICH MAY NO EXIST
IN REAL WORLD.
• USE OF ARITHMETIC MEAN CAN ALSO
BE QUESTIONED DUE TO ITS
LIMITATIONS.
METHOD OF MOVING AVERAGES
Here number of items taken for averaging
will be the number required to cover
period over which the fluctuations occur.
This average is taken as the Normal/Trend
value for the unit of time falling at the
middle of period covered in calculation of
average.The series may be given in odd
or even number of years.
ODD PERIOD:
3 YEARS:- (a+b+c)/3,
(b+c+d)/3,
(c+d+e)/3,………………
5 YEARS:- (a+b+c+d+e)/5,
(b+c+d+e+f)/5,
(c+d+e+f+g)/5,………………
Suppose we are given a time series for 12
years-1989 to 2000 relating to sales of a
certain business firm.these data are given
below.Find out three year moving
averages,starting from 1989:-
Year Sales Year Sales
(million Rs) (million Rs)
1989 10 1995 15

1990 15 1996 24

1991 20 1997 15

1992 25 1998 21

1993 15 1999 15

1994 12 2000 24
Year Sales 3 year 3 year
(million Rs) moving moving
total average
1989 10

1990 15 45 15

1991 20 60 20

1992 25 60 20

1993 15 52 17

1994 12 42 14
Year Sales 3 year 3 year
(million Rs) moving moving
total average
1995 15 51 17

1996 24 54 18

1997 15 60 20

1998 21 54 18

1999 15 63 21

2000 24
THE MOVING AVERAGE IS THEN
PLOTTED ON GRAPH.
EVEN PERIOD:-
IF THE MOVING AVERAGE IS AN EVEN
PERIOD SAY 2,4,6 YEARLY,THE
MOVING TOTAL AND MOVING
AVERAGE ARE PLACED AT THE
CENTRE OF THE TIME SPAN FROM
WHICH THEY ARE CALCULATED FALL
BETWEEN TWO TIME PERIODS.
MERITS:-
2. THIS METHOD IS QUITE SIMPLE.
3. THERE IS NO ELEMENT OF SUBJECTIVITY
LIKE WE HAVE IN THE FREE HAND CURVE
METHOD.
4. IT’S QUITE FLEXIBLE.IT IMPLIES IF WE ADD
SOME VALUES,WE WILL GET SOME MOVE
TREND VALUES.THAT MEANS A FEW
MORE OBSERVATIONS MAY BE ADDED TO
GIVEN DATA WITHOUT AFFECTING THE
TREND VALUES ALREADY CALCULATED.
5. THIS METHOD IS VERY EFFECTIVE IF THE
TREND OF SERIES IS VERY IRREGULAR.
DEMERITS:-
2. WE CAN’T COMPUTE TREND VALUES
FOR ALL THE YEARS.
3. WE REQUIRE A CAUTION IN
SELECTING THE PERIOD OF MOVING
AVERAGE.THERE ARE NO HARD AND
FAST RULES AS FAR AS THE CHOICE
OF PERIOD IS CONCERNED.IT
DEPENDS EXCLUSIVELY ON THE
PERSONAL JUDGEMENT.
LEAST SQUARE METHOD
FOR THIS 2 CONDITIONS ARE
SATISFIED i.e
2. ∑(Y-Yc)=0 i.e the sum of deviations of
the actual values of Y and the computed
values of Y is zero.
3. ∑(Y-Yc)2=minimum i.e sum of the
squares of deviations of the actual
values of Y and the computed values is
minimum from this line.
Equation :-Yc=a+bX
3 things to consider:-
3. The year selected as origin.
4. Unit of time represented by X i.e one,two
or five years.
5. Unit in which Y is measured i.e in
rupees,metres,tonnes etc.
HOW TO DETERMINE ‘a’ AND ‘b’.
Normal equation:-
∑Y=Na+b∑X
∑XY=a∑X+b∑X2
If ∑X=0
(calculation becomes simple when midpoint
in time is taken as origin because -ve
values in first half of series will balance out
+ve values of second half so ∑X=0).
∑X=0, a=∑Y/N and b=∑XY/∑X2.

ODD NUMBER OF YEARS:-WHEN


DEVIATIONS ARE TAKEN FROM
MIDDLE YEAR, ∑X WOULD ALWAYS BE
ZERO.
EVEN NUMBER OF YEARS:- ∑X WOULD
BE ZERO IF X ORIGIN IS KEPT MID-
WAY BETWEEN TWO MIDDLE YEARS.
PROB:-FIT A STRAIGHT LINE TAKING X
AS INDEPENDENT VARIABLE.

X Y
2002 1
2003 1.8
2004 3.3
2005 4.5
2006 6.3
2007 10
SOLN:-
X Y XY X2 Yc
2002 1 0 0 0.23
2003 1.8 1.8 1 1.93
2004 3.3 6.6 4 3.63
2005 4.5 13.5 9 5.33
2006 6.3 25.2 16 7.03
2007 10 50 25 8.73
∑=97.1 ∑=55
26.9=6a+15b------------(i)
97.1=15a+55b------------(ii)
Multiply (i) by 5 and eqn (ii) by 2
134.5=30a+75b
194.2=30a+110b
b=1.7
a=0.233
Yc=0.23+1.7X
SEASONAL VARIATIONS

SEASONAL

SIMPLE RATIO TO RATIO TO LINK RELATIVE


AVERAGES TREND METHOD M.A METHOD METHOD
METHOD OF SIMPLE AVERAGES:-
EASIEST METHOD OF CALCULATING SEASONAL
INDEX.
STEPS:-
4. ARRANGE THE DATA BY YEARS,MONTHS OR
QUARTER AS THE CASE MAY BE.
5. FIND TOTAL OF EACH MONTH OR QUARTER FOR
ALL THE YEARS.
6. FIND AVERAGE FOR EACH MONTH OR QUARTER
FOR ALL THE YEARS.
7. FIND OVERALL AVERAGE OF THESES AVERAGES.
8. SEASONAL INDEX IS EXPRESSED AS EACH
MONTHLY OR QUARTERLY AVERAGE AS A
PERCENTAGE OF OVERALL AVERAGE.
EXAMPLE:-ASSUMING TREND IS
ABSENT,DETERMINE IF THERE IS ANY
SEASONALITY IN DATA GIVEN BELOW
YEAR 1st 2nd 3rd 4th
QUARTE QUARTE QUARTE QUARTE
R R R R
03 72 68 80 70
04 76 70 82 74
05 74 66 84 80
06 76 74 84 78
07 78 74 86 82
03 72 68 80 70

04 76 70 82 74

05 74 66 84 80

06 76 74 84 78

07 78 74 86 82

TOTA 376 352 416 384


L
AVER 75.2 70.4 83.2 76.8
AGE
SEAS 98.4 92.1 108.9 100.5
ONAL
AVERAGE QUARTERLY AVERAGE=
(75.2+70.4+83.2+76.8)/4=76.4
SEASONAL INDEX FOR Ist
QUARTER=75.2*100/76.4=98.4
SEASONAL INDEX FOR 2nd QUARTER=
70.4*100/76.4=92.1
SEASONAL INDEX FOR 3rd
QUARTER=83.2*100/76.4=108.9
SEASONAL INDEX FOR 4th
QUARTER=76.8*100/76.4=100.5
RATIO TO TREND METHOD:-
IMPROVEMENT OVER SIMPLE AVERAGE METHOD.BASED ON
ASSUMPTION THAT SEASONAL FLUCTUATIONS FOR ANY
SEASON ARE A CONSTANT FACTOR OF THE TREND.
STEPS:-
4. COMPUTE THE TREND VALUES BY APPLYING THE METHOD
OF LEAST SQUARES.
5. DIVIDE THE ORIGINAL DATA BY TREND VALUES AND
MULTIPLY THESE RATIOS BY 100.THESE VALUES ARE FREE
FROM TREND BUT CONTAIN SEASONAL,CYCLICAL AND
IRREGULAR COMPONENTS OF TIME SERIES.
6. TO REMOVE EFFECT OF CYCLICAL AND IRREGULAR
COMPONENTS THE PROCESS OF AVERAGING THE
PERCENTAGES FOR EACH QUARTER IS ADOPTED SO THAT
THE SEASONAL VARIATIONS ARE LEFT.EITHER MEAN OR
MEDIAN CAN BE USED FOR THIS PURPOSE.
7. THIS SEASONAL INDICES OBTAINED IN STEP 3 ARE
ADJUSTED TO TOTAL OF 400 FOR QUARTERLY DATA AND
1200 FOR MONTHLY DATA BY MULTIPLYING EACH INDEX
BY A SUITABLE FACTOR IN ORDER TO GET FINAL
SEASONAL INDICES.
YEAR I II III IV

03 60 80 72 68
04 68 104 100 88
05 80 116 108 96
06 108 152 136 124
07 160 184 172 164
YEAR YEARLY QUA DEVIATI XY
TOTAL T.AVEG FROM
MID YR
03 280 70 -2 -140

04 360 90 -1 -90

05 400 100 0 0

06 520 130 1 130

07 680 170 2 280

N=5 ∑=560 ∑=240


X2 TREND
VALUES(Yc)
4 64
1 88
0 112
1 136
4 160
∑X2=10
Y=a+bX
a= ∑Y/N=560/5=112
b= ∑XY/ ∑X2=240/10=24
Y=112+24X
Yearly increment in trend value is
b=24.Thus Per quarter it’s 24/4=6
Calculation of Quarterly Trend Values:-
For 1999,the trend value for the mid year,i.e
half of 2nd quarter and half of 3rd quarter
is 64.quarterly increment=6.
So trend value of 2nd quarter=64-6/2=61.
3rd quarter=64+6/2=67.
1st quarter=64-6-6/2=55.
4th quarter=64+6+6/2=73.
Year/ I II III IV
quat
03 55 61 67 73
04 79 85 91 97
05 103 109 115 121
06 127 133 139 145
07 151 157 163 169
1st quarter of 2003,%ge=60*100/55=109.09
2nd quarter of
2003,%ge=80*100/61=131.15
Year/qu I II III IV TOTA
at L
03 109.09 131.15 107.46 93.15
04 86.08 122.35 109.89 90.72
05 77.67 106.42 93.91 79.34
06 85.04 114.29 97.84 85.52
07 105.96 117.20 105.52 97.04
Total 463 591.42 514.62 445.77
Average 92.77 118.28 102.92 89.1 403.12
Adjusted 92.05 117.36 102.12 84.47 400
Total of average=
92.77+118.28+102.92+89.15=403.12

400/403.12=0.992
Final indices are obtained.
RATIO TO MOVING AVERAGE METHOD
Also known as the percentage of moving average
method. Most widely used method for studying
seasonal variations.
STEPS:-
4. Eliminate seasonality from the data by ironing
it out of the original data. Obtain centered 4
quarters(12 months) moving average values
for the given series. Since the variations recur
after 4 quarters for quarterly data, a 4 quarterly
moving average will wipe out the seasonal
variations provided they are of constant pattern
and intensity. Thus the centered 4 quarter
moving average approximates trend and
cyclical components.
2. Express the original data for each quarter as a
percentage of the centred 4 quarter moving
average corresponding to it.
3.Arrange these percentage acc. to years and
quarters.
4.By averaging these percentages for each
quarter, seasonal indices are obtained. For
averaging mean or median may be used.
5.Sum of these indices should be 400(or 1200)for
quarterly(monthly)data.if it is not so, then an
adjustment is made to eliminate this
discrepency.seasonal indices obtained in step
4 are adjusted to total of 400(or 1200) by
multiplying each index by a suitable factor in
order to get final seasonal indices.
PROBLEM:-calculate seasonal indices by
the ratio to moving average method from
the following data.
YEAR I II III IV

2001 2 3 2 4

2002 5 7 6 8

2003 6 9 9 10
YEAR QUART GIVEN 4 FIG 2 FIG 4 FIG GIVEN
ER FIG MOV MOV MOV FIG%
OF
TOTAL TOTAL AV5/8
MOV
1 2 3 4 5 6
2001 I 2 2*100/3
II 3 11 =67
III 2 14 25 3(appro 4*100/4
IV 4 18 32 4 =100
2002 I 5 22 40 5 100
II 7 26 48 6 117
III 6 27 53 6.5 app 92
IV 8 56 7 114
YEAR QUAR GIVEN 4 FIG 2 FIG 4 FIG GIVEN
TER FIG MOV MOV MOV FIG%
OF
TOTAL TOTAL AV5+8
MOV
1 2 3 4 5 6
2003 I 6 60 7.5 80
II 9 29 64 8 113
III 9 31 - -
IV 10 33 -
-
Year I II III IV TOTAL
2001 - - 67 100 -
2002 100 117 92 114 -
2003 80 113 - - -
TOTAL 180 230 159 214

AVERA 90 115 79.5 107 391.5


GE
ADJUS 90*400 115*40 79.5*4 107*40 400
TED /391.5= 0/391.5 00/391. 0/391.5
91.5 =117.5 5=81.2 =109.3
LINK RELATIVE METHOD:-
ALSO CALLED PEARSON’S METHOD
STEPS:-
4. CONVERT THE ORIGINAL DATA INTO LINK
RELATIVES BY FORMULA:-LINK RELATIVE
FOR ANY QUARTER=(CURRENT QUARTER
VALUE)/PREVIOUS QUARTER VALUE*100.
5. AVERAGE THESE LINK RELATIVES FOR
EACH QUARTER,THE AVERAGE BEING
TAKEN ONE FOR THE GIVEN NO OF
YEARS.
6. CONVERT THESE LINKS INTO CHAIN
RELATIVES ON THE BASE OF THE FIRST
SEASON BY FORMULA:-
=LINK RELATIVE OF THAT QUARTER*CHAIN
RELATIVE OF PREVIOUS QUARTER/100.
4.THE LAST CHAIN RELATIVE SHOULD ALSO
BE 100.BUT DUE TO EFFECT OF LONG TERM
CHANGES,THIS IS NOT USUALY
SO.THEREFORE,IT IS NECESSARY TO
ADJUST THE CHAIN RELATIVE FOR THE
EFFECT OF THE TREND.IF THE LAST CHAIN
RELATIVE IS GREATER THAN 100,THE
CORRECTION FACTOR IS SUBTRACTED;IF IT
IS LESS THAN 100,THE CORRECTION
FACTOR IS TO BE ADDED.
5.FINALLY EXPRESS THE CORRECT
CHAIN RELATIVES AS PERCENTAGES
OF THEIR AVERAGES.THE RESULT
FIGURES ARE THE REQUIRED
SEASONAL INDICES.
PROBLEM:-
YEARS I II III IV

1997 283 258 244 260


1998 210 208 204 241
1999 194 168 159 183
2000 159 162 168 189
2001 184 179 176 197
2002 179 182 182 219
2003 200 204 207 243
SOLN:-
YEARS I II III IV
1997 - 91.17 94.57 106.56
1998 80.76 99.05 98.07 118.14
1999 80.49 86.59 94.64 115.09
2000 86.88 101.88 103.7 112.50
2001 97.35 97.28 98.32 111.93
2002 90.86 102.79 100.00 120.33
2003 91.32 102.00 101.47 117.39
TOTAL 527.66 680.76 690.77 801.94
AVERAGE 87.94 97.25 98.68 114.56
CHAIN 100 97.25*10 97.25*98. 95.97*11
RELATIV 0/100=97. 68/100= 4.56/100=
ES 25 95.97 109.94

ADJUST 100 97.25+ 95.97+1.6 109.94+


ED .83= 6= 2.49=
CHAIN 98.08 97.63 112.43
RELATIV
ES

100*100/ 97.63*10 97.63*10 112.43*1


SEASON
102.035= 0/102.035 0/102.035 00/102.03
AL =
INDICES 98.10 = 5=
95.6 95.60 110.20
CHAIN RELATIVE OF 1 QUARTER ON
BASIS OF IV QUARTER
=87.94*109.94/100=96.68
DIFFERENCE BETWEEN CHAIN
RELATIVE OF 1 QUARTER :
96.68-100= -3.32
-3.32/4= -.83
AVERAGE OF ADJUSTED CHAIN
RELATIVES=(109+98.08+97.63+112.43)/
4
=102.035.
MERITS:-
• HELPFUL IN SHORTTERM BUSINESS
PLANNING,ECONOMIC FORECASTING
AND MANAGERIAL CONCEPT.
• GREAT USE TO A BUSINESS
CONCERN IN SCHEDULING ITS
SEASONAL FINANCING,LABOUR
INTAKE,PERSONNEL
REQUIREMENT,ADVERTISING
PROGRAMMES AND PURCHASES.
• HELPS TO UNDERSTAND CURRENT
MONTHLY VARIATIONS BY COMPARING
THEM WITH CORRESPONDING SEASONAL
INDICES OF A BUSINESS CONCERN AND
THUS THEY ARE USEFUL TO CONTROL THE
OPERATIONS IN BUSINESS CONCERN.
LIMITATIONS:-
EFFECT OF RANDOM FLUCTUATIONS ON A
SEASONAL INDICES CANNOT BE
COMPLETELY RULED OUT.
• REPRESENT AN AVERAGE PATTERN FOR
THE YEARS UNDER STUDY AND THUS
CANNOT BE EXPECTED THAT THE PATTERN
WILL BE ACCURATELY REPEATED IN A
PARTICULAR YEAR.
CYCLICAL VARIATIONS
WE MAY CALCULATE THE SEASONAL
INDEX NUMBER
• IF TIME COSISTS OF ONLY ANNUAL
DATA,THEN THE SEASONAL
VARIATION IS NON EXISTANT i.e WE
CONSIDER ONLY SECULAR,CYCLICAL
AND IRREGULAR COMPONENTS.
• SECULAR TREND BY TREND
LINE.SO,WE CAN ISOLATE TWO
COMPONENTS.
FIND THE CYCLICAL VARIATION BY
DIVIDING THE ACTUAL VALUE(Y) BY
CORRESPONDING VALUE Yc FOR
EACH ITEM.RESULTANT IS
MULTIPLIED BY 100.
PERCENT OF TREND,C=Y*100/Yc.
C=CYCLICAL VARIATION.
Y=ACTUAL VALUE.
Yc=ESTIMATED VALUE.
Yc=a+bX.
Prob:-

Year( 95’ 96’ 97’ 98’ 99’ 00’


X)

Y 15 14 18 20 17 24
Soln:-
Yc=18+1.6X(Applying the method of least
square).
X Y Yc Y*100/Yc
95’ 15 14 107.1
96’ 14 16 87.5
97’ 18 17 105.9
98’ 20 19 105.3
99’ 17 20 85
00’ 24 22 109.1
Values of Y and Yc are then plotted on
graph.
Another method of measuring cyclical
variation.
(Y-
Here,related cyclical residual= Yc)*100/Yc
(Y-Yc)*100/Yc.
7.1
-12.5
5.9
5.3
-15
9.1
Cyclical data ca be used only for past data
and not for forecasting cyclical variation in
future.
IRREGULAR VARIATION
IT MAY BE REITERATED THAT
VARIATIONS ARE NOT MERELY
CYCLICAL BUT COMPRISE BOTH
CYCLICAL AND IRREGULAR
VARIATIONS.
I=CI/C
I =IRREGULAR VARIATION
CI=IRRECULAR AND CYCLICAL
VARIATION.
C=CYCLICAL VARIATION.
ALTHOUGH IT IS EXTREMELY DIFFICULT
TO MEASURE IRREGULAR
VARIATION,WE CAN IDENTIFY THE
CAUSE FOR IRREGULAR
VARIATION.E.g-STRIKES AND
LOCKOUTS