MODULE-3

ANALYSIS OF TIME SERIES

A time series is a chronological arrangement of a set of data.

Ex: Annual rain falls, daily production/sales in an industry, hourly temp of a patient in a
hospital…

The given time series plotted on a graph is called a historigram or actual line

A businessman plan to adjust his production for future sale to meet the demand.

An economist in estimating the likely population in the coming year to plan for food
supply in future.

In such cases the analysis has to be done to do the estimation from the past information
by collecting the data that are collected, observed/recorded at successive interval of time.
Such data are generally referred as time series

Utility & component of time series analysis: This helps to study the past behaviour of the
data, estimate the future value for planning, to study the variations in data at different
times and places.

Sales is affected by the components: price, advertisement expenses, taste/trend/habits if

customers, other competitive products, income of customer

Price of a product: raw materials, transportation cost, competitive products

Components of time series:

1. Secular Trend/Long term movements-Daily needs

2. Seasonal variations
Measurement of trends:

1. Free hand or graphic method

2. Method of semi averages(odd/even number of years):

Here the given data is divided into two equal parts(preferably with same number
of years)& average of each part is obtained. However, in case of odd number of
years the two parts are obtained by omitting the value for the middle period. Then
these averages are plotted as points against the mid point of the respective time
periods covered by each part. (trend line)
Problems

1. Fit a trend line to the following data by graphical method

Year 2000 2001 2002 2003 2004 2005 2006

Value 33 48 42 58 55 60 65

2. Fit a trend line to the following data by graphical method

Year 2015 2016 2017 2018 2019 2020 2021 2022

Production
600 800 900 850 910 980 900 880
(in tones)
3. Fit a trend line to the following data by method of semi-averages

Year 2017 2018 2019 2020 2021 2022 2023

Sales (thousand units) 102 105 114 110 108 116 112
4. Fit a trend line by the method of semi-averages to the data given below.
Also Estimate the sales for the year 2024

Year 2016 2017 2018 2019 2020 2021 2022 2023

Sales (Rs. lakhs) 412 438 444 454 470 482 490 500
5. The sale of commodity in tones varied from January 2022 to December 2022 in
the following manner

280 300 280 280 270 240

230 230 220 200 210 200

Fit a trend line by the method of semi-averages to the data given above.
Method of moving averages:
This consists of a series of moving averages of successive overlapping groups/sections of
the time series. This smoothens the curve by reducing the influence of fluctuations that
pull the annual figures away from the general trend. It is characterized by a constant
known as the period/extent of the moving averages.
i.e. for the time series 𝑦1 , 𝑦2 , 𝑦3 … for different time periods, the moving average(M.A.)
values of period m are given by
𝑦1 + 𝑦2 + 𝑦3 …+𝑦𝑚
1st M.A.= ,
𝑚

𝑦2 + 𝑦3 …+𝑦𝑚+1
2nd M.A.= ,
𝑚

𝑦3 +𝑦4 …+𝑦𝑚+2
3rd M.A.= …
𝑚
(i) When period(m) is odd: The successive values of the moving averages are
placed against the middle values of the corresponding time intervals.

(ii) When period(m) is even: The successive values of the moving averages are
placed between the two middle values of the time intervals it covers & later to
synchronise the values with the original data ‘centering’ is done taking a two-
period average of the moving averages and placing it in between the
corresponding time periods.
Note: The period of the moving averages should be same as the period of the cyclic
movements in the series. (observe the peaks). If it is not so, then the moving average is
taken as the average period of the various cycles present in the data.

3 yearly
years variable moving 5 yearly moving average
averages
𝒚𝟏 a -
(𝒂 + 𝒃 + 𝒄)
𝒚𝟐 b
𝟑
(𝒃 + 𝒄 + 𝒅) (𝒂 + 𝒃 + 𝒄 + 𝒅 + 𝒆)
𝒚𝟑 c
𝟑 𝟓
(𝒄 + 𝒅 + 𝒆) (𝒃 + 𝒄 + 𝒅 + 𝒆 + 𝒇)
𝒚𝟒 d
𝟑 𝟓
(𝒅 + 𝒆 + 𝒇) (𝒄 + 𝒅 + 𝒆 + 𝒇 + 𝒈)
𝒚𝟓 e
𝟑 𝟓
(𝒆 + 𝒇 + 𝒈) (𝒅 + 𝒆 + 𝒇 + 𝒈 + 𝒉)
𝒚𝟔 f
𝟑 𝟓
(𝒇 + 𝒈 + 𝒉)
𝒚𝟕 g --
𝟑
𝒚𝟖 h - --
 2 yearly moving 2 yearly moving
years variable
averages centered averages
𝒚𝟏 a -- -
(𝒂 + 𝒃)
=𝑨
𝟐
(𝑨 + 𝑩)
𝒚𝟐 b
𝟐
(𝒃 + 𝒄)
=𝑩
𝟐
(𝑩 + 𝑪)
𝒚𝟑 c
𝟐
(𝒄 + 𝒅)
=𝑪
𝟐
(𝑪 + 𝑫)
𝒚𝟒 d
𝟐
(𝒅 + 𝒆)
=𝑫
𝟐
(𝑫 + 𝑬)
𝒚𝟓 e
𝟐
(𝒆 + 𝒇)
=𝑬 --
𝟐
𝒚𝟔 f -- --

4 yearly moving
years variable 4 yearly moving averages centered
averages
𝒚𝟏 a -- -

𝒚𝟐 b -- --
(𝒂 + 𝒃 + 𝒄 + 𝒅)
=𝑨
𝟒
(𝑨 + 𝑩)
𝒚𝟑 c
𝟐
(𝒃 + 𝒄 + 𝒅 + 𝒆)
=𝑩
𝟒
(𝑩 + 𝑪)
𝒚𝟒 d
𝟐
(𝒄 + 𝒅 + 𝒆 + 𝒇)
=𝑪
𝟒
𝒚𝟓 e -- --

𝒚𝟔 f -- --
PROBLEMS:

1. Calculate 3 yearly moving averages from the following data and plot
historigram and trend values on a graph

Production Production Production

Year Year Year
(in 000s kg) (in 000s kg) (in 000s kg)
2011 70 2015 76 2019 83
2012 72 2016 79 2020 80
2013 75 2017 78 2021 82
2014 74 2018 80 2022 85

2. Calculate 3-weekly and 5-weekly moving averages from the following data
Sales Sales
Weeks Weeks
(in 00s of Rs) (in 00s of Rs)
1 6 8 14
2 7 9 15
3 9 10 13
4 8 11 16
5 10 12 17
6 13 13 15
7 11 14 18
3. Assume a four – yearly cycle and calculate the trend by the method of moving
averages from the following data relating to the production of tea in India

Production Production
Year year
(in m.tonnes) (in m.tonnes)
1994 464 1999 540
1995 515 2000 557
1996 518 2001 571
1997 467 2002 586
1998 502 2003 612
Solution:
Four-yearly Four-yearly
Production moving centered
Year
(in m. tonnes) average moving
average
1994 464
1995 515
491.00
1996 518 495.75
500.50
1997 467 503.62
506.75
1998 502 511.62
516.50
1999 540 529.50
542.50
2000 557 553.00
563..50
2001 571 572.50
581.50
2002 586
2003 612

4. Compute 2 and 4 monthly moving averages from the following from the
following data and also represent the data on the graph

Sales Sales
Month Month
(in 00s of Rs) (in 00s of Rs)
January
3 September 8
2022
February 5 October 12

March 4 November 10

April 6 December 12
January
May 5 11
2023
June 8 February 14

July 7 March 13

August 9 April 15
 5. Determine the period of the moving average for the following data and calculate the
moving averages for that period.
Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Value 130 127 124 135 140 132 129 127 145 158 153 146 145 164 170

6. Find the trend of annual sales of a trading organisation by moving average method.
Year Annual
sales(in
Rs)
1980 40
1981 42
1982 40
1983 44
1984 49
1985 46
1986 42
1987 44
1988 44
1989 50
1990 42
1991 48
1992 46
1993 52
1994 58
1995 56
1996 51
1997 57
1998 54
1999 63

MEASUREMENT OF SEASONAL VARIATIONS

The measurement of seasonal variations is done by isolating them from other components
of a time series. There are four methods commonly used for the measurement of seasonal
variations. These methods are:
1. Method of Simple Average
2. Ratio to Trend Method
3. Ratio to Moving Average Method
4. Method of link Relatives

SIMPLE AVERAGES METHOD

Under this method, the time series data for each of the 4 seasons (for quarterly data) of a
particular year are expressed as percentages to the seasonal average for that year.
The percentages for different seasons are averaged over the years by using simple average.
The resulting percentages for each of the 4 seasons then constitute the required seasonal indices.
Method of calculating seasonal indices
(i) The data is arranged season-wise
(ii) The data for all the 4 seasons are added first for all the years and the seasonal averages for
each year is computed.
(iii) The average of seasonal averages is calculated
(i.e., Grand average = Total of seasonal averages /number of years).
(iv) The seasonal average for each year is divided by the corresponding grand average and the
results are expressed in percentages and these are called seasonal indices.

Year Season 1 Season 2 Season 3 Season 4

Y1 q11 q12 q13 q14
Y2 q21 q22 q23 q24
Y3 q31 q32 q33 q34
Y4 q41 q42 q43 q44
Y5 q51 q52 q53 q54
Seasonal
T1 T2 T3 T4
Total
Seasonal 𝑇1 𝑇2 𝑇3 𝑇4
average = A1 = A2 = A3 = A4
5 5 5 5
General 𝐴1 +𝐴2 + 𝐴3 + 𝐴4
Average =𝐺
4

Seasonal 𝐴1 𝐴2 𝐴3 𝐴4
Index × 100 = 𝑠1 × 100 = 𝑆2 × 100 = 𝑆3 × 100 = 𝑆4
𝐺 𝐺 𝐺 𝐺

PROBLEMS
1. Obtain the seasonal indices for the following data by simple average method
Year Season 1 Season 2 Season 3 Season 4
2000 3.7 4.1 3.3 3.5
2001 3.7 3.9 3.6 3.6
2002 4.0 4.1 3.3 3.1
2003 3.3 4.4 4.0 4.0
Solution:

Year Season 1 Season 2 Season 3 Season 4

2000 3.7 4.1 3.3 3.5
2001 3.7 3.9 3.6 3.6
2002 4.0 4.1 3.3 3.1
2003 3.3 4.4 4.0 4.0
Seasonal Total 14.7 16.5 14.2 14.2
Seasonal
3.675 4.125 3.55 3.55
average
 General Average 3.725
Seasonal Index 98.66 110.74 95.30 95.30

2. Consumption of monthly electric power in million of kwh for street lighting in a big city during
1999-2003 is given below
Year Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
1999 318 281 278 250 231 216 223 245 269 302 325 347
2000 342 309 299 268 249 236 242 262 288 321 342 364
2001 367 328 320 287 269 251 259 284 309 345 367 394
2002 392 349 342 311 290 273 282 305 328 364 389 471
2003 420 378 370 334 314 296 305 330 356 396 422 452
Find the seasonal variation by the method of monthly averages.
3. Obtain the seasonal indices for the rain fall (in mm) data in India given in the
following table.

Ratio to Trend Method

This method of calculating a seasonal index also termed as the percent age to trend
method, is relatively simple and yet an improvement over the method of simple averages.
These methods suppose that the seasonal variation for a given month is constant fraction
of trend. The ratio-to-trend method presumably isolated the seasonal factor in the
following manner. The Trend is removed when the rations are computed in effect.
(T x S x C x I)/T = S x C x I.
Random elements are supposed to vanish when the ratios are averaged. A careful
selection of the period of years used in the computation is expected to cause the
influences or depression to offset each other and thus eliminate the cycle for series which
are not subject to pronounced cyclical or random influences and for that trend can be
computed accurately. The steps in the computation of seasonal index are:
1. Trend values are first obtained by applying the method of least squares.
2. The next step is to divide the original data month by month by the corresponding trend
value & multiply these ratios by 100. The values so obtained are now free from trend and
the problem that remains is to free them from irregular and cyclical movements.
3. In order to free the values form irregular and cyclical movements the figures given for
different years for January, February, etc, are averaged with any one of the usual
measures of central value, for illustrate the median or the mean. If the data are examined
month by month, it is sometimes possible to describe a definite cause to usually high or
low values. When such causes are found to be associated with irregular variations (like
extremely bad weather and earthquake famine etc.) they may be cast out and the mean of
the remaining items is known to as a modified mean. Since such scrutiny of the data
needs considerable knowledge of prevailing conditions and is to a large extend
subjective, it is frequently desirable to use to median which is normally not affected by
very high or very low values.
4. The seasonal index for every month is expressed as a percentage of the average month.
The sum of 12 values must equal to 1,200 or 100 per cent. If it is not, an adjustment is
made by multiplying every index by a suitable factor (1,200 / the sum of the 12 values)
this gives the final seasonal index.
To find seasonal index by Ratio to trend or Percentage to trend method for the
given data

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Y1 q11 q12 q13 q14

Y2 q21 q22 q23 q24
Y3 q31 q32 q33 q34
Y4 q41 q42 q43 q44
Y5 q51 q52 q53 q54
Step 1: Find yearly totals and Average from the given seasonal data
(Quarterly or Monthly)
1st 2nd 4th yearly Average
Year 3rd Quarter totals
Quarter Quarter Quarter
Y1 q11 q12 q13 q14 S1 Q1
Y2 q21 q22 q23 q24 S2 Q2
Y3 q31 q32 q33 q34 S3 Q3
Y4 q41 q42 q43 q44 S4 Q4
Y5 q51 q52 q53 q54 S5 Q5
S1
Example : S1 = q11 + q12 + q13 + q14 and Q1 =
4

Step 2: Fit a linear trend as y = a + bx by using method of least squares

for the data given below
Year (x) Y1 Y2 Y3 Y4 Y5
Average (y) Q1 Q2 Q3 Q4 Q5
Step 3: Calculate the trend value using y = a + bx Where b is annual increment

Year (x) Y1 Y2 Y3 Y4 Y5
Trend Value T1 T2 T3 T4 T5
Step 4:
Calculate Quarterly Trend values using
b
Quarterly increment = 𝐼 =
4
Consider first year i.e., Y1 trend value of for the middle quarter
i.e., between 2nd and 3rd quarter is T1.
Since the quarterly increment is I, hence the trend value of
𝑰
2nd quarter is 𝑻𝟏 − = 𝑻𝟏𝟐
𝟐

𝑰
3nd quarter is 𝑻𝟏 + = 𝑻𝟏𝟑
𝟐

𝑰
1st quarter is 𝑻𝟏 − − 𝑰 = 𝑻𝟏𝟐 − 𝑰 = 𝑻𝟏𝟏
𝟐

𝑰
4th quarter is 𝑻𝟏 + + 𝑰 = 𝑻𝟏𝟑 + 𝑰 = 𝑻𝟏𝟒
𝟐
Using above method, calculate quarterly trend values for the years Y2 , Y3 , Y4 and
Y5 and write the table for the trend values as
Middle
of the
Quarters

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

𝑻𝟏𝟐 − 𝑰 𝑰 𝑰 𝑻𝟏𝟑 + 𝑰
𝑻𝟏 − 𝑻𝟏 +
𝟐 𝟐

T1

Y1 T11 T12 T13 T14

𝑻𝟐𝟐 − 𝑰 𝑰 𝑰 𝑻𝟐𝟑 + 𝑰
𝑻𝟐 − 𝑻𝟐 +
𝟐 𝟐
T2

Y2 T21 T22 T23 T24

T3
Y3 T31 T32 T33 T34
T4
Y4 T41 T42 T43 T44
T5
Y5 T51 T52 T53 T54
Note: Trend value of Y2 is equal to (trend value of Y1+b) and so on
Example: T21 = T11 + b , ………………. T54 = T41 + b
 1st 4th
Year 2nd Quarter 3rd Quarter
Quarter Quarter
Y1 T11 T12 T13 T14
Y2 T21 T22 T23 T24
Y3 T31 T32 T33 T34
Y4 T41 T42 T43 T44
Y5 T51 T52 T53 T54
Step 5: Express given values (q11 , q12, q13 , q14 , q21 , ….q54) as percentage of the
corresponding trend values (T11 , T12, T13 , T14 , T21 , ….T54)
𝑞
Example 𝑃11 = 11 × 100 ,
𝑇11
𝑞12
𝑃12 = × 100 , …………………
𝑇12
𝑞54
𝑃54 = × 100
𝑇54
Given quarterly values as percentage of trend values
1st 2nd 4th
Year 3rd Quarter
Quarter Quarter Quarter
Y1 P11 P12 P13 P14
Y2 P21 P22 P23 P24
Y3 P31 P32 P33 P34
Y4 P41 P42 P43 P44
Y5 P51 P52 P53 P54
Step 6: Find the seasonal indices for above data by simple average method
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Y1 P11 P12 P13 P14
Y2 P21 P22 P23 P24
Y3 P31 P32 P33 P34
Y4 P41 P42 P43 P44
Y5 P51 P52 P53 P54
Seasonal
P1 P2 P3 P4
Total
Seasonal 𝑃1 𝑃2 𝑃3 𝑃4
= 𝐴1 = 𝐴2 = 𝐴3 = 𝐴4
average 5 5 5 5
Grand 𝐴1 + 𝐴2 + 𝐴3 + 𝐴4
Average =𝐺
4
𝐴1 𝐴3 𝐴4
Seasonal × 100 𝐴2 × 100 × 100
Index 𝐺 × 100 = 𝑆𝐼2 𝐺 𝐺
= 𝑆𝐼1 𝐺 = 𝑆𝐼3 = 𝑆𝐼4
 PROBLEMS
1. Using ratio to trend method, determine the quarterly seasonal indices for the
following data
Production of coal (in millions of tons)
Year 1 Quarter 2nd Quarter 3rd Quarter 4th Quarter
st

2018 68 60 61 63
2019 70 58 56 60
2020 68 63 68 67
2021 65 56 56 62
2022 60 55 55 58
Solution:

Computation of linear trend

Year(t) Total Average x=t-t0 x2 xy Trend values
quarterly quarterly y=a+bx
values values(y)
1 252 63 -2 4 -126 64.10
2 244 61 -1 1 -61 62.78
3 266 66.5 0 0 0 61.45
4 239 59.75 1 1 59.75 60.125
5 228 57 2 4 114 58.80
The straight line trend equation is y=61.45-1.325x where b = yearly increment in the trend
value.
Quarterly increment =b/4= -0.33(declining trend)
The average quarterly trend value for the first year=64.1
The trend values for the 2nd & 3rd quarters of the first year are 64.26 & 63.93

Computation of seasonal indices

Trend values
Year 1 Qrt. 2Qrt. 3Qrt. 4Qrt.
1 64.59 64.26 63.93 63.60
2 63.27 62.94 62.60 62.27
3 61.94 61.61 61.28 60.95
4 60.62 60.29 59.95 59.62
5 59.29 58.96 58.63 58.30
Trend eliminated values(Given values as % of trend values)
Year 1 Qrt. 2Qrt. 3Qrt. 4Qrt.
1 105.27 93.37 95.41 99.05
2 110.63 92.15 89.44 96.35
3 109.78 102.26 110.96 109.93
4 107.26 92.88 93.41 103.99
5 101.19 93.28 93.81 99.49
Seasonal 106.82 94.75 96.60 101.75
Average
Grand average 99.98
Seasonal index 106.84 94.77 96.61 101.77

2. Using ratio to trend method, determine the quarterly seasonal indices for the
following data
 Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2018 30 40 36 34
2019 34 52 50 44
2020 40 58 54 48
2021 54 76 68 62
2022 80 92 86 82
Solution:

Computation of linear trend

Year(t) Total Average x=t-t0 x2 xy Trend values
quarterly quarterly y=a+bx
values values(y)
1999 140 35 -2 4 -70 32
2000 180 45 -1 1 -45 44
2001 200 50 0 0 0 56
2002 260 65 1 1 65 68
2003 340 85 2 4 170 80
The straight line trend equation is y=56+12x where b = yearly increment in the trend value.
Quarterly increment =b/4= 3
The average quarterly trend value for the first year=32
The trend values for the 2nd & 3rd quarters of the first year are 30.5 & 33.5

Computation of seasonal indices

Trend values
Year 1 Qrt. 2Qrt. 3Qrt. 4Qrt.
1999 27.5 30.5 33.5 36.5
2000 39.5 42.5 45.5 48.5
2001 51.5 54.5 57.5 60.5
2002 63.5 66.5 69.5 72.5
2003 75.5 78.5 81.5 84.5
Trend eliminated values(Given values as % of trend values)
Year 1 Qrt. 2Qrt. 3Qrt. 4Qrt.
1999 109.09 131.15 107.46 93.15
2000 86.08 122.35 109.89 90.72
2001 77.67 106.42 93.91 79.34
2002 85.04 114.29 97.84 85.52
2003 105.96 117.20 105.52 97.04
Seasonal 92.77 118.28 102.92 89.15
Average
Grand average 100.78
Seasonal index 92.05 117.36 102.12 88.46

RATIO TO MOVING AVERAGE METHOD

The ratio to moving average is the most commonly used method of measuring seasonal
variations. This method assumes the presence of all the four components of a time series.
Various steps in the computation of seasonal indices are as follows:
1.Compute the moving averages with period equal to the period of seasonal variations.
This would eliminate the seasonal components and minimize the effect of random
 component. The resulting moving averages would consist of trend, cyclical and random
components.
2. The original values, for each quarter ( or month) are divided by the respective moving
average figures and the ratio is expressed as a percentage, i.e. SR” = Y / M. A = TCSR /
TCR’, where R’ and R” denote the changed random components.
3. Finally, the random component R” is eliminated by the method of simple averages.

To find seasonal index by Ratio to Moving average method for the given data

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Y1 q11 q12 q13 q14

Y2 q21 q22 q23 q24
Y3 q31 q32 q33 q34

Step 1: Find FOUR figure moving average from the given seasonal
data (Quarterly or Monthly) and Express given values
(q13 , q14 , q21 , ….) as percentage of the corresponding moving
average values (C1 , C2 , C3 , ….)
𝑞13
Example 𝑃13 = × 100
𝐶1
𝑞14
𝑃14 = × 100 …….
𝐶2
4 moving
4 moving % of
year Quarter Value centered
averages moving average
averages
I q11 --

II q12 --
𝒚𝟏 M1
𝒒𝟏𝟑
III q13 C1 × 𝟏𝟎𝟎 = 𝑷𝟏𝟑
𝑪𝟏
M2
𝒒𝟏𝟒
IV q14 C2 × 𝟏𝟎𝟎 = 𝑷𝟏𝟒
𝑪𝟐
M3
𝒒𝟐𝟏
I q21 C3 × 𝟏𝟎𝟎 = 𝑷𝟐𝟏
𝑪𝟑
M4
𝒒𝟐𝟐
II q22 C4 × 𝟏𝟎𝟎 = 𝑷𝟐𝟐
𝒚𝟐 𝑪𝟒
M5
𝒒𝟐𝟑
III q23 C5 × 𝟏𝟎𝟎 = 𝑷𝟐𝟑
𝑪𝟓
M6
 𝒒𝟐𝟒
IV q24 C6 × 𝟏𝟎𝟎 = 𝑷𝟐𝟒
𝑪𝟔
M7
𝒒𝟑𝟏
I q31 C7 × 𝟏𝟎𝟎 = 𝑷𝟑𝟏
𝑪𝟕
M8
𝒒𝟑𝟐
II q32 C8 × 𝟏𝟎𝟎 = 𝑷𝟑𝟐
𝒚𝟑 𝑪𝟖
M9
III q33 --

IV q34 --

Step 2: Find the seasonal indices for above data by simple average
method
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Y1 -- -- P13 P14
Y2 P21 P22 P23 P24
Y3 P31 P32 -- --
Seasonal
P1 P2 P3 P4
Total
Seasonal 𝑃1 𝑃2 𝑃3 𝑃4
average = 𝐴1 = 𝐴2 = 𝐴3 = 𝐴4
2 2 2 2
Grand 𝐴1 + 𝐴2 + 𝐴3 + 𝐴4
Average =𝐺
4
𝐴1 𝐴3 𝐴4
Seasonal × 100 𝐴2 × 100 × 100
Index 𝐺 × 100 = 𝑆𝐼2 𝐺 𝐺
= 𝑆𝐼1 𝐺 = 𝑆𝐼3 = 𝑆𝐼4

PROBLEMS:

1. Calculate the seasonal indices by the ratio to moving average method

from the following data

Year 1st quarter 2nd quarter 3rd quarter 4th quarter

2001 68 62 61 63
2002 65 58 66 61
2003 68 63 63 67
Solution:

Year 1 Qrt. 2Qrt. 3Qrt. 4Qrt.

2020 -- --- 96.63 101.20
2021 104.21 92.43 104.97 95.50
2022 106.04 97.67 --- ---
Average 105.125 95.05 100.8 98.35
S.I
Adjusted 105.3 95.21 100.97 98.52
S.I.
2. Calculate the seasonal indices by the ratio to moving average method from the following
data
Quarter 2019 2020 2021
I 101 106 110
II 93 96 101
III 79 83 88
IV 98 103 106
Solution:

Computation of Moving Averages

Year 1 Qrt. 2Qrt. 3Qrt. 4Qrt.
2020 --- --- 84.6 103.8
2021 111.3 99.6 85.1 104.4
2022 110.1 100.1 --- ---
Average S.I 110.7 99.8 84.8 104.1
Adjusted 110.82 99.96 84.95 104.24
S.I.

LINK RELATIVES METHOD

This method is based on the assumption that the trend is linear and cyclical variations are
of uniform pattern. The link relatives are percentages of the current period (quarter or
month) as compared with the previous period. With the computations of the link relatives
and their average, the effect of cyclical and the random components is minimized.
Further, the trend gets eliminated in the process of adjustment of chain relatives.

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Y1 q11 q12 q13 q14

Y2 q21 q22 q23 q24
Y3 q31 q32 q33 q34
Y4 q41 q42 q43 q44
Y5 q51 q52 q53 q54
Step 1: Compute the Link Relative (L.R.) of each period by dividing the figure of that
period with the figure of previous period.
q12
For example,: Link relative of q12 = L12 = × 100
q11

q13
Link relative of q13 = L31 = × 100
q12

q21
Link relative of q21 = L21 = × 100 …..
q14

1st 4th
Year 2nd Quarter 3rd Quarter
Quarter Quarter
Y1 -- L12 L13 L14
Y2 L21 L22 L23 L24
Y3 L31 L32 L33 L34
Y4 L41 L42 L43 L44
Y5 L51 L52 L53 L54

Step 2: Obtain the average of link relatives of a given quarter of various years.
Arithmetic Mean (Average) can be used for this purpose. Theoretically, the later is
preferable because the former gives undue importance to extreme items.

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Y1 -- L12 L13 L14
Y2 L21 L22 L23 L24
Y3 L31 L32 L33 L34
Y4 L41 L42 L43 L44
Y5 L51 L52 L53 L54
Seasonal
L1 L2 L3 L4
Total
Seasonal 𝑳𝟏 𝑳𝟐 𝑳𝟑 𝑳𝟒
average = 𝑨𝟏 = 𝑨𝟐 = 𝑨𝟑 = 𝑨𝟒
𝟒 𝟓 𝟓 𝟓

Step 3: These averages are converted into chained relatives by assuming the chained
relative of the first quarter (or month) equal to 100.
The chained relative (C.R.) for the current period (quarter ) = Chain Relative of the
previous period ×Link Relative of the current period / 100.

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Y1 -- L12 L13 L14
Y2 L21 L22 L23 L24
 Y3 L31 L32 L33 L34
Y4 L41 L42 L43 L44
Y5 L51 L52 L53 L54
Link
L1 L2 L3 L4
Total
Link 𝐿1 𝐿2 𝐿3 𝐿4
Relative = 𝐴1 = 𝐴2 = 𝐴3 = 𝐴4
4 5 5 5
Chain 𝟏𝟎𝟎 × 𝑨𝟐 𝑪𝟐 × 𝑨𝟑 𝑪𝟑 × 𝑨𝟒
𝟏𝟎𝟎 (ASSUMED) = 𝑪𝟐 = 𝑪𝟑 = 𝑪𝟒
Relatives 𝟏𝟎𝟎 𝟏𝟎𝟎 𝟏𝟎𝟎

Step 4: Compute the CHAIN RELATIVE of the first quarter on the basis of the last
quarter (or month).
This is given by Chain Relative of the last quarter × average Link Relative of the first
𝑪𝟒 ×𝑨𝟏
quarter / 100 ie., 𝑪𝟏 =
𝟏𝟎𝟎

This value, in general, is different from 100 due to long term trend in the data. The
chained relatives, obtained above, are to be adjusted for the effect of this trend.
The adjustment factor (AF) = new Chain Relative for 1st quarter - 100
𝐴𝐹
for quaterly data 𝐷 =
4

Step 5 : On the assumption that the trend is linear D, 2D, 3D is respectively subtracted
from the 2nd , 3rd , 4th , etc quarter

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Y1 -- L12 L13 L14

Y2 L21 L22 L23 L24
Y3 L31 L32 L33 L34
Y4 L41 L42 L43 L44
Y5 L51 L52 L53 L54
Link
L1 L2 L3 L4
Total
Link 𝐿1 𝐿2 𝐿3 𝐿4
= 𝐴1 = 𝐴2 = 𝐴3 = 𝐴4
Relative 4 5 5 5
Chain 100 × 𝐴2 𝐶2 × 𝐴3 𝐶3 × 𝐴4
100 (ASSUMED) = 𝐶 2 = 𝐶3 = 𝐶4
Relatives 100 100 100
Corrected
𝑳𝑹𝟒 = 𝑪𝟒
Chain 𝑳𝑹𝟏 = 𝟏𝟎𝟎 𝑳𝑹𝟐 = 𝑪𝟐 − 𝑫 𝑳𝑹𝟑 = 𝑪𝟑 − 𝟐𝑫
− 𝟑𝑫
Relatives
Step 6 Express the adjusted chained relatives as a percentage of their average to obtain
seasonal indices.
 Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Y1 -- L12 L13 L14
Y2 L21 L22 L23 L24
Y3 L31 L32 L33 L34
Y4 L41 L42 L43 L44
Y5 L51 L52 L53 L54
Link
L1 L2 L3 L4
Total
Link 𝐿1 𝐿2 𝐿3 𝐿4
Relative = 𝐴1 = 𝐴2 = 𝐴3 = 𝐴4
4 5 5 5
Chain 100 × 𝐴2 𝐶2 × 𝐴3 𝐶3 × 𝐴4
100 (ASSUMED) = 𝐶2 = 𝐶3 = 𝐶4
Relatives 100 100 100
Corrected
𝐿𝑅4 = 𝐶4
Chain 𝐿𝑅1 = 100 𝐿𝑅2 = 𝐶2 − 𝐷 𝐿𝑅3 = 𝐶3 − 2𝐷
− 3𝐷
Relatives
Grand 𝐿𝑅1 + 𝐿𝑅2 + 𝐿𝑅3 + 𝐿𝑅4
Average =𝐺
4

Step 7: Make sure that the sum of these indices is 400

(for quarterly data is 400 ) and (1200 for monthly data).

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Y1 -- L12 L13 L14
Y2 L21 L22 L23 L24
Y3 L31 L32 L33 L34
Y4 L41 L42 L43 L44
Y5 L51 L52 L53 L54
Link
L1 L2 L3 L4
Total
Link 𝐿1 𝐿2 𝐿3 𝐿4
Relative = 𝐴1 = 𝐴2 = 𝐴3 = 𝐴4
4 5 5 5
Chain 100 × 𝐴2 𝐶2 × 𝐴3 𝐶3 × 𝐴4
100 (ASSUMED) = 𝐶2 = 𝐶3 = 𝐶4
Relatives 100 100 100
Corrected
Chain 𝐿𝑅1 = 100 𝐿𝑅2 = 𝐶2 − 𝐷 𝐿𝑅3 = 𝐶3 − 2𝐷 𝐿𝑅4 = 𝐶4 − 3𝐷
Relatives
Grand 𝐿𝑅1 + 𝐿𝑅2 + 𝐿𝑅3 + 𝐿𝑅4
Average =𝐺
4
𝑳𝑹𝟑
Seasonal 𝑳𝑹𝟏 𝑳𝑹𝟐 × 100 𝑳𝑹𝟒
Indices × 100 = 𝑆𝐼1 × 100 = 𝑆𝐼2 𝐺 × 100 = 𝑆𝐼4
𝐺 𝐺 = 𝑆𝐼 𝐺
3
Sum of
Seasonal 𝑆𝐼1 + 𝑆𝐼2 + 𝑆𝐼3 + 𝑆𝐼4 = 400
Indices
 PROBLEMS
1. Calculate the seasonal indices by the link relative method from the following data
Year 1999 2000 2001 2002 2003
st 6.6
1 quarter 6.0 5.4 6.8 7.2
2nd quarter 6.5 7.9 6.5 5.8 7.3
3rd quarter 7.8 8.4 9.3 7.5 8.0
4th quarter 8.7 7.3 6.4 8.5 7.1

Solution:
Computation of seasonal indices by link relative method
Year 1 Qrt. 2Qrt. 3Qrt. 4Qrt.
2015 --- 108.33 120 111.538
2016 62.068 146.296 106.329 86.904
2017 93.151 95.588 143.076 68.817
2018 112.5 80.555 129.310 113.333
2019 77.647 110.606 109.589 88.75
Average L R 86.341 108.275 121.6608 93.868
Chain relative 100 108.275 131.728 123.650
Adjusted C R 100 106.585 128.348 118.58
S.I. 88.20 94.01 113.20 104.59

2. Compute the seasonal indices by the ‘Link relatives’ method for the following data
Quarter 2014 2015 2016 2017
I 75 86 90 100
II 60 65 72 78
III 54 63 66 72
IV 59 80 85 93
Solution:
Computation of seasonal indices by link relative method
Year 1 Qrt. 2Qrt. 3Qrt. 4Qrt.
2020 --- 80 90 109.26
2021 145.76 75.58 96.92 126.98
2022 112.50 80 91.67 128.79
2023 117.65 78 92.31 129.17
Average L R 125.30 78.395 92.725 123.55
Chain relative 100 78.395 72.692 89.811
Adjusted C R 100 75.261 66.424 80.409
S.I. 124.188 93.465 82.491 99.858
3. Calculate the seasonal indices by the link relative method from the following data

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

2021 7 20 10 8
2022 10 21 16 10
2023 12 25 20 15