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Arima modelling

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Data Analysis Course Venkat Reddy

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Data Analysis Course Venkat Reddy

is

no

and

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P is the order of AR process

q is the order of MA process

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(long term)

y t =

a 1 y t-1 +

a 2 y t-2

_{1}

ε _{t}_{-}_{1}

b _{1} ε _{t}_{-}_{1}

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Data Analysis Course Venkat Reddy

y t = a 1 y t-1 +

ε t

+ ε t

y t = a 1 y t-1 +

a 2 y t-2

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Data Analysis Course

model

model

No

forecasting

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1

2

3

4

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Data Analysis Course

Lags

Rho

Pr < Rho

0

0.3251

0.7547

1

0.3768

0.7678

2

0.3262

0.7539

0

-6.9175

0.2432

1

-3.5970

0.5662

2

-3.7030

0.5522

0

-11.8936

0.2428

1

-7.1620

0.6017

2

-9.0903

0.4290

Augmented Dickey-Fuller Unit Root Tests

Type

Tau

Pr < Tau

F

Pr > F

Zero

0.74

0.8695

Mean

1.26

0.9435

1.05

0.9180

Single

-1.77

0.3858

2.05

0.5618

Mean

-1.06

0.7163

1.52

0.6913

-0.88

0.7783

1.02

0.8116

Trend

-2.50

0.3250

3.16

0.5624

-1.60

0.7658

1.34

0.9063

-1.53

0.7920

1.35

0.9041

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Actual Series

Series After

Differentiation

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Data Analysis Course

Lags

Rho

Pr < Rho

0

-37.7155

<.0001

1

-32.4406

<.0001

2

-19.3900

0.0006

0

-38.9718

<.0001

1

-37.3049

<.0001

2

-25.6253

0.0002

0

-39.0703

<.0001

1

-37.9046

<.0001

2

-25.7179

0.0023

Augmented Dickey-Fuller Unit Root Tests

Type

Tau

Pr < Tau

F

Pr > F

Zero

-7.46

<.0001

Mean

-3.93

0.0003

-2.38

0.0191

Single

-7.71

0.0002

29.70

0.0010

Mean

-4.10

0.0036

8.43

0.0010

-2.63

0.0992

3.50

0.2081

Trend

-7.58

0.0001

28.72

0.0010

-4.08

0.0180

8.35

0.0163

-2.59

0.2875

3.37

0.5234

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ACF Graph

0

10

20

30

40

Lag

Bartlett's formula for MA(q) 95% confidence bands

Autocorrelations of presap

-0.50

0.00

0.50

1.00

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Data Analysis Course Venkat Reddy

Partial Autocorrelation Function

(PACF)

• The exclusive correlation coefficient

• Partial regression coefficient - The lag k partial

autocorrelation is the partial regression coefficient, θ kk in the

k th order auto regression

• In general, the "partial" correlation between two variables is

the amount of correlation between them which is not

explained by their mutual correlations with a specified set of

other variables.

• For example, if we are regressing a variable Y on other

variables X1, X2, and X3, the partial correlation between Y

and X3 is the amount of correlation between Y and X3 that is

not explained by their common correlations with X1 and X2.

•

y t

+ θ k2 y t-2 + …+

ε t

= θ k1 y t-1

θ kk y t-k +

• Partial correlation measures the degree of association

between two random variables, with the effect of a set of

controlling random variables removed.

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PACF Graph

0

10

20

30

40

Lag

95% Confidence bands [se = 1/sqrt(n)]

Partial autocorrelations of presap

-0.50

0.00

0.50

1.00

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Once again

Properties of the ACF and PACF of MA, AR and ARMA Series

Process

MA(q)

AR(p)

ARMA(p,q)

Autocorrelation

function

Cuts off

Infinite. Tails off.

Damped Exponentials

and/or Cosine waves

Infinite. Tails off.

Damped Exponentials

and/or Cosine waves

after qp.

Partial

Autocorrelation

Infinite. Tails off.

Dominated by damped

Exponentials & Cosine

waves.

Cuts off

function

Infinite. Tails off.

Dominated by damped

Exponentials & Cosine waves

after pq.

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y t = -0.9ε t-1

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y t = 0.7ε t-1

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y t = 0.99ε t-1

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Once again

Properties of the ACF and PACF of MA, AR and ARMA Series

Process

MA(q)

AR(p)

ARMA(p,q)

Autocorrelation

function

Cuts off

Infinite. Tails off.

Damped Exponentials

and/or Cosine waves

Infinite. Tails off.

Damped Exponentials

and/or Cosine waves

after qp.

Partial

Autocorrelation

Infinite. Tails off.

Dominated by damped

Exponentials & Cosine

waves.

Cuts off

function

Infinite. Tails off.

Dominated by damped

Exponentials & Cosine waves

after pq.

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ARMA Model Identification

Properties of the ACF and PACF of MA, AR and ARMA Series

Process

MA(q)

AR(p)

ARMA(p,q)

Autocorrelation

function

Cuts off

Infinite. Tails off.

Damped Exponentials

and/or Cosine waves

Infinite. Tails off.

Damped Exponentials

and/or Cosine waves

after qp.

Partial

Autocorrelation

Infinite. Tails off.

Dominated by damped

Exponentials & Cosine

waves.

Cuts off

function

Infinite. Tails off.

Dominated by damped

Exponentials & Cosine waves

after pq.

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Data Analysis Course Venkat Reddy

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Data Analysis Course

d = 0, p =2, q= 0

SAS ARMA(p+d,q) Tentative Order Selection Tests

SCAN

ESACF

p+d

q

p+d

q

2

0

2

3

1

5

4

4

5

3

y t = a1y t-1 + a2y t-2 + ε t

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LAB: Identification of

model

• Download web views data

• Use sgplot to create a trend chart

• What does ACF & PACF graphs say?

• Identify the model using below table

• Write the model equation

Properties of the ACF and PACF of MA, AR and ARMA Series

Process

MA(q)

AR(p)

ARMA(p,q)

Autocorrelation

Infinite. Tails off.

Damped Exponentials

function

Cuts off

Infinite. Tails off.

Damped Exponentials

and/or Cosine waves

and/or Cosine waves

after qp.

Partial

Autocorrelation

Infinite. Tails off.

Dominated by damped

Exponentials & Cosine

waves.

Cuts off

function

Infinite. Tails off.

Dominated by damped

Exponentials & Cosine waves

after pq.

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Demo1: Parameter

Estimation

• Chemical reading data

proc arima data=chem_readings;

identify var=reading scan esacf center;

estimate p=2 q=0 noint method=ml;

run;

Maximum Likelihood Estimation

Parameter

Estimate

Standard

t Value

Error

Approx

Pr > |t|

Lag

AR1,1

0.42444

0.06928

6.13

<.0001

1

AR1,2

0.25315

0.06928

3.65

0.0003

2

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y t = 0. 424y t-1 + 0.2532y t-2 + ε t

Data Analysis Course

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Forecasting

• Now the model is ready

• We simply need to use this model for forecasting

proc arima data=chem_readings;

identify var=reading scan esacf center;

estimate p=2 q=0 noint method=ml;

forecast lead=4 ;

run;

Obs

Forecast

Forecasts for variable Reading

Std Error

95% Confidence Limits

198

17.2405

0.3178

16.6178

17.8633

199

17.2235

0.3452

16.5469

17.9000

60

200

17.1759

0.3716

16.4475

17.9043

201

17.1514

0.3830

16.4007

17.9020

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Mean absolute deviation,

n

i 1

Y

Y ˆ

i

i

n

n

i 1

n

Y Y ˆ

i

i

Y

i 1

i

2

Y

Y ˆ

i

i

MSE

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