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 310 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 prosperityOptimisim, 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.
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 19992006 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 19992002 is 15 (b/w
20002001)
• The Average of 20032006=25. (b/w
20042005)
• 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.
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.
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. ∑(YYc)=0 i.e the sum of deviations of
the actual values of Y and the computed
values of Y is zero.
3. ∑(YYc)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.
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
04 76 70 82 74
05 74 66 84 80
06 76 74 84 78
07 78 74 86 82
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
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
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
(YYc)*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.gSTRIKES AND
LOCKOUTS