TIME SERIES ANALYSIS

MODULE 4 (MATERIAL -1)

Time Series Analysis
Time series analysis is a specific way of analyzing a sequence of data points collected over an interval of
time. In time series analysis, analysts record data points at consistent intervals over a set period of time
rather than just recording the data points intermittently or randomly. However, this type of analysis is not
merely the act of collecting data over time.

Significance and Importance

Time series analysis is used for non-stationary data—things that are constantly fluctuating over time
or are affected by time. Industries like finance, retail, and economics frequently use time series
analysis because currency and sales are always changing. Stock market analysis is an excellent
example of time series analysis in action, especially with automated trading algorithms. Likewise,
time series analysis is ideal for forecasting weather changes, helping meteorologists predict everything
from tomorrow’s weather report to future years of climate change. Examples of time series analysis in
action include:

 Weather data
 Rainfall measurements
 Temperature readings
 Heart rate monitoring (EKG)
 Brain monitoring (EEG)
 Quarterly sales
 Stock prices
 Automated stock trading
 Industry forecasts
 Interest rates

Methods of Estimating Trend:

 Freehand Method: First the time series figures are plotted on a graph. The points are joined
by straight lines. We get fluctuating straight lines, through which an average straight line is
drawn. This method is however, inaccurate, since different persons may fit different trend
lines for the same set of data.
 Moving Average Method: A moving average is defined as an average of fixed number of
items in the time series which move through the series by dropping the top items of the
previous averaged group and adding the next in each successive average.
 Semi-Average Method : By semi-averages is meant the averages of the two halves of a
series. In this method, thus, the given series is divided into two equal parts (halves) and the
arithmetic mean of the values of each part (half) is calculated. The computed means are
termed as semi-averages.
 Least Square Method: it the process of finding the best-fitting curve or line of best fit for a
set of data points by reducing the sum of the squares of the offsets (residual part) of the
points from the curve
Seasonal Index: A seasonal index is a measure of how a particular season through some cycle
compares with the average season of that cycle. By deseasonalizing data, we're removing
seasonal fluctuations, or patterns in the data, to predict or approximate future data values.

Methods of Estimating Seasonal Index:

 Method of Simple Averages: sum all data and divide by the number of periods (i.e., years)
multiplied by the number of seasons (i.e., quarters).
 Ratio to Trend Method : This method is used when then cyclical variations are absent from the
data, i.e. the time series variable Y consists of trend, seasonal and random components.
 Ratio to Moving Average Method: The ratio-to-moving-average (RMA) forecasting method is
simple and widely used technique for predicting future values of a time series. It involves dividing
the actual value of a variable by its moving average over a specified period of time, and using this
ratio as a forecast for the next period.
 Questions:

1. Fit a straight line trend by the method of least square from the following data. Also obtain trend
for the year 1998
Year 1991 1992 1993 1994 1995 1996 1997
Sales 80 90 92 83 94 99 92
{(MBA103 (NS)Jan/Feb 2003)/18MBA14, Dec.2018-Jan.2019}

2. Below are given the figures of production (in thousand kgs) of a sugar factory

Year 1990 1991 1992 1993 1994 1995 1996

Production 12 10 14 11 13 15 16
Fit a straight line trend to the above data using the method of least squares.
{(MBA103 (NS)Jan/Feb 2003)}

3. Below are given he figures of production (in 000 tons) of a sugar factory.
Year 1998 1999 2000 2001 2002 2003 2004
Production 77 88 94 85 91 98 90
Fit a straight line by the method of least squares.
What is the monthly increase in production?
(MBA103, Jan-Feb.2005/05MB13, Dec.2005-Jan.2006)

4. With the help of the following data, calculate the trend values by the method of least squares
and estimate the sales for the year 2011.
Years 2000 2001 2002 2003 2004 2005 2006
Sales (in lakhs) 25 27 32 36 44 55 69
(08MBA13, June-July.2011)

5. Fit a straight line trend by the method of least squares and estimate the arrival in the year 2013,
for the data indicated in the table below:
Year 2003 2004 2005 2006 2007 2008 2009
Tourist arrivals 18 20 23 25 24 28 30
(10MBA13, June-July.2011/08MBA13, Dec.2011/10MBA13, Dec.2011/18MBA14 June-
July.2019)

6. Calculate the trend values by the method of least squares. Also calculate the sales for the year
2012 and 2013.
Year 2005 2006 2007 2008 2009 2010 2011
Sales (in lakhs) 125 128 133 135 140 141 143
(10MBA13, Dec.2013-Jan.2014)

7. You have been provided with the figures of production (in 000’s tons) of a sugar factory.
 Year 2011 2012 2013 2014 2015 2016 2017
Production 77 88 94 85 91 98 90
1. Fit a straight line by the method of least squares and find trend values.
2. What is the yearly increase in production?
(18MBA14, Aug-Sept.2020)

8. Fit a straight line trend to the data by the method of least squares.
Year 1979 1980 1981 1982 1983 1984 1985
Output (Rs in crores) 672 824 968 1205 1464 1758 2058
{(MBA103(NS) June-July .2003)}

9. Fit a linear trend to the following data by least square method and also estimate the production
for the year 2007:
Year 1998 2000 2002 2004 2006
Production (in 000 units) 18 21 23 27 16
(05MBA13, June-July.2008/18MBA14, Dec.2019-Jan.2020)

10. Fit a straight line trend for the following data

X 1 2 3 4 5
Y 14 27 40 55 68
(MBA103 (NS) June-July. 2003)
11. The number of units of a product exported during 1992-99 are given below. Fit a straight line
trend to the data. Plot the given data showing also the trend line. From the graph estimate the
export for 2000.
Year 1992 1993 1994 1995 1996 1997 1998 1999
No of units in (000) 12 13 13 16 19 23 21 24
{(MBA103 (NS)Jan/Feb 2003)}

12. From the following data. Fit a straight line trend through the method of least square.
Year 1985 1986 1987 1988 1989 1990 1991 1992
Expenditure (Rs in’000) 43 49 54 62 71 75 78 80
{(MBA103(NS)July/Aug 2002)}

13. The sale of bicycle manufactured by a company for the last eight years are given below. Fit a
straight line trend by the method of least squares.
Plot the original data and trend line in graph.
Year 1970 1971 1972 1973 1974 1975 1976 1977
No of units Mftd (000) 12 13 13 16 19 23 21 23
{(MBA103(NS)July/Aug 2002)}
14. Fit a straight line by the method of least squares. Estimate the sales for 2001.
 Year 1995 1996 1997 1998 1999 2000
Sales (Rs) 15 14 18 20 17 24
{(05MBA13, Dec.2006-Jan.2007)}

15. The sales of a company in million of rupees for the years 1994-2001 are given below:
Year 1994 1995 1996 1997 1998 1999 2000 2001
Sales 550 560 555 585 540 525 545 585
i. Find the linear trend equation
ii. Estimate the sales for 1993
(08MBA13, Dec.2009-Jan.2010/05MBA13, Dec.2010)

16. You are given the exports of electronic goods from 1990 to 1995. Fit a linear trend to the
exports data and estimate the expected exports for the year 2005.
Year 1990 1991 1992 1993 1994 1995
Exports in 11 16 13 18 22 20
crore Rs.
(10MBA13, Jan.2011)

PROBLEMS ON SEMI AVERAGES, MOVING AVERAGES, 3 YEARS MOVING

AVERAGES, 4 YEARS MOVING AVERAGES, 5 YEARS MOVING AVERAGES.
1. Apply the method of semi averages for determining trend of the following data.
Year Sales of firm A (000 units)
1993 20
1994 24
1995 22
1996 30
1997 28
1998 32
2. Fit a trend line to the following data by the method of semi averages (Draw a graph)
Year Sales of firm A (000 units)
1990 102
1991 105
1992 114
1993 110
1994 108
1995 116
1996 112
{(MBA103 (NS)Jan/Feb 2003)}

3. Plot the following data on a graph paper and ascertain trend by the method of semi averages.
Year Production Year Production
 (Million Tonnes) (Million Tonnes)
1994 100 1998 108
1995 120 1999 102
1996 95 2000 112
1997 105
{(MBA103 (NS)Jan/Feb 2003)}

4. Calculate 3 yearly and 5 yearly moving averages for the following data.
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Y 242 250 252 249 253 255 251 257 260 265 262
5. Calculate five yearly moving averages of number of students studying in a commerce college
as shown in by the following figures.
Year 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
No of students 332 317 357 392 402 405 410 427 405 438
{(MBA103 (NS)Jan/Feb 2003)}

6. Calculate the trend values by the method of moving average assuming a four yearly cycle
from the following data relating to sugar production in India.
Year Sugar production (lakh tonnes)
1971 37.4
1972 31.1
1973 38.7
1974 39.5
1975 47.19
1976 42.6
1977 48.4
1978 64.6
1979 58.4
1980 38.6
1981 51.4
1982 84.4
(MBA103 (NS) June-July. 2003)

7. Calculate the 5 yearly and 7 yearly moving average for the following data of a number of
commercial industrial failures in a country during 1988-95.
Year No of failures Year No of failures
1988 23 1996 9
1989 26 1997 13
1990 28 1998 11
1991 32 1999 14
1992 20 2000 12
 1993 12 2001 9
1994 12 2002 3
1995 10 2003 1
{(MBA103 (NS) July-Aug.2005)}

8. Determine the period of the moving average for the following data and calculate 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

(05MBA13, Dec-Jan.2010)

9. Fit a quadratic trend for the following series. Hence estimate the population for the year
2011.
Year 1961 1971 1981 1991 2001
Population 44 55 68 84 101
(in crores)
{(05MBA13, July.2006)}

SEASONAL VARIATION

Seasonal variations are fluctuations within a year over different seasons.

Estimation of seasonal variations requires that the time series data are recorded at even intervals such
as quarterly, monthly, weekly or daily, depending on the nature of the time series. Changes due to
seasons, weather conditions and social customs are the primary causes of seasonal variations. The
main objective of the measurement of seasonal variation is to study their effect and isolate them from
the trend.

Methods of constructing seasonal indices

There are four methods of constructing seasonal indices.

1. Simple averages method
2. Ratio to trend method
3. Percentage moving average method

1. Calculate the seasonal index for the following data using the average method.
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1974 72 68 80 70
1975 76 70 82 74
1976 74 66 84 80
1977 76 74 84 78
 1978 78 74 86 82
(MBA103(NS), June-July.2003)

2. For the data on prices (in Rs. Per kg) of a certain commodity during 2007 to 2011 are shown
below. Compute the seasonal indexes by the average percentage method.
Year 1st Quarter 2nd Quarter 3rd 4th Quarter
Quarter
2007 45 54 72 60
2008 48 56 63 56
2009 49 63 70 65
2010 52 65 75 72
2011 60 70 84 66
(18MBA14, Dec.2018-Jan.2019)

3. Find the seasonal variation by the ratio to trend method from the following data.
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2001 86 95 96 99
2002 96 102 104 110
2003 103 108 106 107
4. Compute the seasonal index for the following data assuming that there is no need to adjust the
data for the trend.
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1990 3.5 3.9 3.4 3.6
1991 3.5 4.1 3.7 4.8
1992 3.5 3.9 3.7 4.0
1993 4.0 4.6 3.8 4.5
1994 4.1 4.4 4.2 4.5
1995 4.2 4.6 4.3 4.7
(18MBA14, Dec.2019-Jan.2020)

5. Calculate seasonal indices by the ratio to moving average method from the following data.
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2005 68 62 61 63
2006 65 58 66 61
2007 68 63 63 67
(08MBA13, Dec.2008-Jan.2009)

6. Find the seasonal index from the following table by ratio to moving average method.
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1998 40 35 38 40
1999 42 37 39 38
2000 41 35 38 42
2001 45 36 36 41
2002 44 38 38 42