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Ratio To Trend Method

This document discusses the ratio to trend method for time series analysis. It involves obtaining trend values through least squares fitting, expressing original data as percentages of the trend values to isolate seasonal components, averaging the percentages for each month/quarter to obtain seasonal indices, and adjusting the indices to total 1200 for monthly data or 400 for quarterly data. While it attempts to remove cyclical variations, the seasonal indices may be biased if the series exhibits strong cycles. Its advantage over moving averages is that seasonal indices can be obtained for each data point without losing early or late observations.

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Kumuthaa Ilangovan
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1K views1 page

Ratio To Trend Method

This document discusses the ratio to trend method for time series analysis. It involves obtaining trend values through least squares fitting, expressing original data as percentages of the trend values to isolate seasonal components, averaging the percentages for each month/quarter to obtain seasonal indices, and adjusting the indices to total 1200 for monthly data or 400 for quarterly data. While it attempts to remove cyclical variations, the seasonal indices may be biased if the series exhibits strong cycles. Its advantage over moving averages is that seasonal indices can be obtained for each data point without losing early or late observations.

Uploaded by

Kumuthaa Ilangovan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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TIME S E R I E S A N A L Y S I S 2-47

.6-2, Ratio to Trend Method. This method is an improvement over the


simple
nle averages method and is based on the assumption that seasonal variation
averages meti
San
for any given
month
is constant factor of the trend. The mecasurement of
asonal variation by this method consists on the followingmethod
seasonal
steps
(i) Obtain the
trend values by the least square by fitting a
nathematical curve, straight line or 2nd degree polynomial, etc.
data as the percentage of the trend values.
i ) Express the original
the seasonal,
Assiuming the multiplicative model, these percentages will contain
components.
cyclic and irregular
are then wiped out by averaging
(ii) The cyclic and irregular components
for different months (quarters) if the data are monthly (quarterly),
the percentages
with indices of seasonal variations. Either arithmetic mean
or
thus leaving us
be used for averaging, but median is preferred to arithmetic mean
median can
extreme values which are not primarily
since the latter gives undue weightage to
there are few abnormal values, modified mean (which
due to seasonal swings. If
after dropping out the extreme or
consists of calculating arithmetic mean
abnormal values) may be used with advantage.
these indices, obtained in step (iii), are adjusted to a total of
(iv) Finally,
data by multiplying them throughout
1200 for monthly data or 400 for quarterly
by a constant k given by
1200 400
and k
Total of the indices
RTatal of the indices
for monthly and quarterly data respectively.
at ironing out the
Merits and Demerits. Since this method attempts
the of averaging, the purpose will be
cyclical or irregular components by process
or they are
are known to be absent
accomplished only if the cyclical variations if the series exhibits
not so pronounced if present. On the other hand,
even
obtained by the least square method
pronounced cyclical swings, the trend values
12-month moving average and as
can never follow the actual data as closely as
method are liable to be
'ratio to trend'
ucn the seasonal indices obtained by method discussed
biased than those obtained by 'ratio to moving average'
more
in $ 2.5.3.
over the moving average
method lies
The obvious advantage of this method
which the data
obtained for each month for
e lact that 'ratio to trend' can be there is
unlike the 'ratio to moving average method,
4vailable and as such,
no loss of data. first fitting
simplificd to a great extent by a
Kemark. The calculations are lso ahtainina the manthlv

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