What is a time series and what are the various components of time series?
Time series is a series of values of a quantity obtained at successive times, often with equal intervals between them. For example, monthly revenue, yearly earnings, daily sales etc)
The factors that affect the values of a time series are called its components. The components of a time series are:
- Secular Trend: It refers to the long term trend in the observations.
- Seasonal Variation: These are the fluctuations observed at a particular season and at regular intervals of time. For example, the increase in sales of umbrellas during monsoons.
- Cyclical Variation: The increase and decrease in values of the observations following a cyclic pattern of prosperity, decline, recession and then gradual increase. Cyclic variations can be effects of the economic conditions.
- Irregular Variation: These are random fluctuations in observed values due to unusual circumstances like war, natural calamities etc.
The decomposition of a time series into these components can vary. These components often overlap with each other.
What is seasonal variation? Explain.
- Seasonal Variation is one of the components of a time series. That is, it is one of the factors affecting the values observed in a time series.
- These are the fluctuations observed at a particular season and at regular intervals of time.
- The same pattern can be seen every year or at regular intervals depending on the product.
- For example, the increase in sales of umbrellas during monsoons, sweets during festivals, air conditioners in summer etc. (more examples can be given)
- These trends help to predict the change in demand so that corresponding supply of goods can be arranged.