Time Series

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)

Example:

Month Jan Feb Mar April May June July Aug Sept
Sales 10 15 12 14 16 20 25 15 14

The factors that affect the values of a time series are called its components. The components of a time series are:

  1. Secular Trend: It refers to the long term trend in the observations.
  2. 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.
  3. 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.
  4. 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.

  1. 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.
  2. These are the fluctuations observed at a particular season and at regular intervals of time.
  3. The same pattern can be seen every year or at regular intervals depending on the product.
  4. For example, the increase in sales of umbrellas during monsoons, sweets during festivals, air conditioners in summer etc. (more examples can be given)
  5. These trends help to predict the change in demand so that corresponding supply of goods can be arranged.

 

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