Forecasting is the process of making statements about events whose actual
outcomes (typically) have not yet been observed. A commonplace example might
be estimation of the expected value for some variable of interest at some specified
future date. Prediction is a similar, but more general term. Both might refer to
formal statistical methods employing time series, cross-sectional or longitudinal
data, or alternatively to less formal judgemental methods. Usage can differ between
areas of application: for example in hydrology, the terms "forecast" and
"forecasting" are sometimes reserved for estimates of values at certain specific
future times, while the term "prediction" is used for more general estimates, such
as the number of times floods will occur over a long period. Risk and uncertainty are
central to forecasting and prediction; it is generally considered good practice to
indicate the degree of uncertainty attaching to forecasts. The process of climate
change and increasing energy prices has led to the usage of Egain Forecasting of
buildings. The method uses Forecasting to reduce the energy needed to heat the
building, thus reducing the emission of greenhouse gases. Forecasting is used in the
practice of Customer Demand Planning in every day business forecasting for
manufacturing companies. The discipline of demand planning, also sometimes
referred to as supply chain forecasting, embraces both statistical forecasting and a
consensus process. An important, albeit often ignored aspect of forecasting, is the
relationship it holds with planning. Forecasting can be described as predicting what
the future will look like, whereas planning predicts what the future should look like.
[1]
There is no single right forecasting method to use. Selection of a method should
be based on your objectives and your conditions (data etc.).[2] A good place to find a
method, is by visiting a selection tree. An example of a selection tree can be found
here.[3]
Time series methods
Time series methods use historical data as the basis of estimating future outcomes.
• Rolling forecast is a projection into the future based on past performances, routinely
updated on a regular schedule to incorporate data.[4]
• Moving average
• weighted moving average
• Exponential smoothing
• Autoregressive moving average (ARMA)
• Autoregressive integrated moving average (ARIMA)
e.g. Box-Jenkins
• Extrapolation
• Linear prediction
• Trend estimation
• Growth curve
Causal / econometric methods
Some forecasting methods use the assumption that it is possible to identify the underlying factors
that might influence the variable that is being forecast. For example, sales of umbrellas might be
associated with weather conditions. If the causes are understood, projections of the influencing
variables can be made and used in the forecast.
• Regression analysis using linear regression or non-linear regression
• Econometrics
• Autoregressive moving average with exogenous inputs (ARMAX)
[edit] Judgmental methods
Judgmental forecasting methods incorporate intuitive judgements, opinions and subjective
probability estimates.
• Composite forecasts
• Surveys
• Delphi method
• Scenario building
• Technology forecasting
• Forecast by analogy
[edit] Artificial intelligence methods
• Artificial neural networks
• Support vector machines
[edit] Other methods
• Simulation
• Prediction market
• Probabilistic forecasting and Ensemble forecasting
• Reference class forecasting
In statistics, signal processing, econometrics and mathematical finance, a time series is a
sequence of data points, measured typically at successive times spaced at uniform time intervals.
Examples of time series are the daily closing value of the Dow Jones index or the annual flow
volume of the Nile River at Aswan. Time series analysis comprises methods for analyzing time
series data in order to extract meaningful statistics and other characteristics of the data. Time
series forecasting is the use of a model to forecast future events based on known past events: to
predict data points before they are measured. An example of time series forecasting in
econometrics is predicting the opening price of a stock based on its past performance.
Time series data have a natural temporal ordering. This makes time series analysis distinct from
other common data analysis problems, in which there is no natural ordering of the observations
(e.g. explaining people's wages by reference to their education level, where the individuals' data
could be entered in any order). Time series analysis is also distinct from spatial data analysis
where the observations typically relate to geographical locations (e.g. accounting for house
prices by the location as well as the intrinsic characteristics of the houses). A time series model
will generally reflect the fact that observations close together in time will be more closely related
than observations further apart. In addition, time series models will often make use of the natural
one-way ordering of time so that values for a given period will be expressed as deriving in some
way from past values, rather than from future values (see time reversibility.)
Methods for time series analyses may be divided into two classes: frequency-domain methods
and time-domain methods. The former include spectral analysis and recently wavelet analysis;
the latter include auto-correlation and cross-correlation analysis.
Analysis
There are several types of data analysis available for time series which are appropriate for
different purposes.
General exploration
• Graphical examination of data series
• Autocorrelation analysis to examine serial dependence
• Spectral analysis to examine cyclic behaviour which need not be related to
seasonality. For example, sun spot activity varies over 11 year cycles.[1][2]
Other common examples include celestial phenomena, weather patterns,
neural activity, commodity prices, and economic activity.
Description
• Separation into components representing trend, seasonality, slow and fast
variation, cyclical irregular: see decomposition of time series
• Simple properties of marginal distributions
Prediction and forecasting
• Fully-formed statistical models for stochastic simulation purposes, so as to
generate alternative versions of the time series, representing what might
happen over non-specific time-periods in the future
• Simple or fully-formed statistical models to describe the likely outcome of the
time series in the immediate future, given knowledge of the most recent
outcomes (forecasting).
moving average
In statistics, a moving average, also called rolling average, rolling mean or running average,
is a type of finite impulse response filter used to analyze a set of data points by creating a series
of averages of different subsets of the full data set.
Given a series of numbers and a fixed subset size, the moving average can be obtained by first
taking the average of the first subset. The fixed subset size is then shifted forward, creating a
new subset of numbers, which is averaged. This process is repeated over the entire data series.
The plot line connecting all the (fixed) averages is the moving average. Thus, a moving average
is not a single number, but it is a set of numbers, each of which is the average of the
corresponding subset of a larger set of data points. A moving average may also use unequal
weights for each data value in the subset to emphasize particular values in the subset.
A moving average is commonly used with time series data to smooth out short-term fluctuations
and highlight longer-term trends or cycles. The threshold between short-term and long-term
depends on the application, and the parameters of the moving average will be set accordingly.
For example, it is often used in technical analysis of financial data, like stock prices, returns or
trading volumes. It is also used in economics to examine gross domestic product, employment or
other macroeconomic time series. Mathematically, a moving average is a type of convolution
and so it is also similar to the low-pass filter used in signal processing. When used with non-time
series data, a moving average simply acts as a generic smoothing operation without any specific
connection to time, although typically some kind of ordering is implied.
