QMT412 Pn.

Sanizah's Notes

03/05/2013

CHAPTER 6

INTRODUCTION

What is a time series?

A set of data observed over a period of time, usually of equal intervals (i.e. hourly, daily, weekly, monthly, quarterly or yearly)

TIME SERIES DATA ANALYSIS

Purpose of time series

Identify the fluctuations due to seasonal factors

Example:
Annual sales, revenue, production and net income of a business enterprise over a number of years
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Prepared by Sanizah Ahmad

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Marketing example:

Medical Example
Three signals are measured from the same ill human simultaneously: Electrocardiogramme (ECG), pressure, respiration.

Monthly product sales of a certain company

months

Floating of average level of ECG and especially of pressure are caused by breathing.

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QMT412 Pn. Sanizah's Notes

03/05/2013

COMPONENTS OF A TIME SERIES

COMPONENTS OF TIMES SERIES

(1)TREND long term general movement where the value of the variable tends to increase or decrease over a long period of time (more than10 years).
Example : Cost of living reflect the Consumer Price Index (CPI)

TREND (T)

CYCLICAL VARIATIONS (C)

SEASONAL VARIATIONS (S)

IRREGULAR VARIATIONS (I)

Histogram

Method of Least Squares

Moving Average Additive Model Multiplicative Model

(2) CYCLICAL VARIATIONS movement repeats its patterns over a period of time (2-10 years)
Example : Economic recession
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Cont

(3) SEASONAL VARIATION involve pattern of change which are repeated from year to year.
Example : weather and holidays

COMPONENT OF A TIME SERIES TREND ANALYSIS

Trend can be described using a graph called histogram where the independent variable (x-axis) is time and dependent variable (y-axis) is the observed variable.

(4) IRREGULAR VARIATIONS describe the movements of variable which is completely unpredictable
Example : earthquake, tsunami, epidemics
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QMT412 Pn. Sanizah's Notes

03/05/2013

Other Methods of Trend Analysis (main focus of this chapter)

(1) ESTIMATION OF THE TREND

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1. Methods of Least Squares or Least Squares Method (trend equation)

USE LEAST SQUARES METHOD The purpose is to obtain the line of the best fit (trend equation) from the data. The equation of the least squares line (trend line) is

2. Moving Average

T a bx

AIM of trend analysis: to predict the future based on the past after minimizing the variations involved
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where T = trend x = time period a = estimated trend at time zero b = increase in the trend per unit
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Cont

Example 1(pg. 167)

Values of a and b can be determined by the following formulas

n b 2 x 2 x n a x y xy

The profits of a grocery shop over the 10 years period 20022011 are given in the table below. Year Profit (RM000)

a) b) c)

d)

Find the trend line. Find the trend values. Forecast the profit for 2012 and 2013. Plot the time series data and the trend line.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

15 24 22 20 21 23 28 31 30 34
12

y b x
n n
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QMT412 Pn. Sanizah's Notes

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Example 2 (pg. 170)

The following table shows the sales of an electrical item of a company for the year 2009 to 2011.
Sales (RM000) Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

(2) Moving Average Method

Calculated by averaging the most recent n values in a time series Can be used to forecast the data value for the next period but not for periods which are too far in the future Centred moving average (when the period is an even number of terms) i.e.: monthly (12), quarterly (4)

2009 2010 2011

a) b) c) d)

48 65 73

44 32 38

26 30 34

38 35 46

Plot the data. Calculate the trend using the least squares method. Estimate the trend values for 1st and 2nd quarter 2009. Forecast the trend of sales for 1st and 2nd quarter 2012.
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Simple moving average (when the period is an odd number of terms) i.e.: 5 days a week, three (3) shifts a day
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Example 3 (pg. 172)

The following table shows the sales of an electric company for the year 2009 to 2011. Year
2009 2010 2011
a) b)

Example 4 (pg. 174)

Table shows the number of computers produced by a factory during the morning, afternoon and evening shifts of the week.
Day Monday Tuesday Wednesday Thursday Friday Morning (M) Afternoon (A) Evening (E)

Sales (RM000)
1st quarter 48 65 73 2nd quarter 3rd quarter 44 32 38 26 30 34 4th quarter 38 35 46

255 234 237 240 240

224 239 233 227 230

241 250 256 259 256

Calculate the trend values using the moving average method. Forecast/estimate the trend values for 1st and 2nd quarters of the year 2012.
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Calculate the trend values using the moving average method.

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QMT412 Pn. Sanizah's Notes

03/05/2013

COMPONENT OF A TIME SERIES

SEASONAL VARIATIONS
We will only discuss on multiplicative model

Seasonal Variation
Multiplicative model
Actual data = trend x seasonal variation x cyclical variation x catastrophic variation x residual variation

Let the assumption be: There is NO cyclical or catastrophic component

ADDITIVE MODEL

MULTIPLICATIVE MODEL

Then the formula is:

Actual data=trend x seasonal variation x residual variation

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Example 5 (Pg. 177)

Table shows the sales of an electrical item of a company for the year 2009 to 2011.

(a) Calculate the seasonal index of the sales for each quarter and interpret the results. (b) Forecast the sales for the 1st and 2nd quarters of the year 2012.
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