Time Series Forecasting
Module 5
Time series forecasting
Time series forecasting
• 5.1 Taxonomy of Time Series Forecasting methods
• Time Series Decomposition
• 5.2 Smoothening Methods:
• Average method, Moving Average smoothing,
• Time series analysis using linear regression : ARIMA Model,
• Performance Evaluation:
• Mean Absolute Error, Root Mean Square Error, Mean Absolute
Percentage Error, Mean Absolute Scaled Error
Taxonomy of Time Series
Forecasting methods
https://www.analyticsvidhya.com/blog/2021/07/time-series-forecasting-complete-tutorial-part-1/
Time series forecasting
Time series is a series of observations listed in the order of time.
The data points in a time series are usually recorded at constant
successive time intervals.
Time series analysis is the process of extracting meaningful non-trivial
information and patterns from time series.
Time series forecasting is the process of predicting the future value of
time series data based on past observations and other inputs.
Time series forecasting is one of the oldest known predictive analytics
techniques.
It is widely used in every organizational setting and has deep statistical
foundations.
Time series forecasting
An example of a time series is shown in Fig. 12.1. It shows the time series value
and period monthly revenue of a product for a few years.
Time series forecasting
Time series decomposition
o Time series decomposition is the process of deconstructing a time series into the
number of constituent components with each representing an underlying
phenomenon.
o Decomposition splits the time series into a trend component, a seasonal
component, and a noise component.
o The trend and seasonality components are predictable (and are called systematic
components), whereas, the noise, by definition, is random (and is called the non-
systematic component).
o Before forecasting the time series, it is important to understand and describe the
components that make the time series.
o These individual components can be better forecasted using regression or similar
techniques and combined together as an aggregated forecasted time series. This
technique is called forecasting with decomposition.
Time series forecasting techniques
o Time series can be thought as past observations informing future predictions.
o To forecast future data, one can smooth past observations and project it to the
future.
o Such time series forecasting methods are called smoothing based forecasting
methods.
o In smoothing methods, the future value of the time series is the weighted
average of past observations.
o Regression based forecasting techniques are similar to conventional supervised
predictive models, which have independent and dependent variables, but with a
twist: the independent variable is now time.
Time series forecasting techniques
o The simplest of such methods is of course a linear regression model of the form:
where yt is the value of the target variable at time t.
o Given a training set, the values of coefficients a and b can be estimated to
forecast future y values.
o Regression based techniques can get pretty complicated with the type of
function used to model the relationship between future value and time.
o Commonly used functions are exponential, polynomial, and power law functions.
Time series forecasting
techniques
Time Series decomposition
Different components that make up a time series are as follows:
The trend and seasonality are the systematic components of a time series. Systematic components can
be forecasted. It is impossible to forecast noise, the non-systematic component of a time series.
In the time series decomposition can be classified into additive decomposition and multiplicative
decomposition, based on the nature of the different components and how they are composed. In an
additive decomposition, the components are decomposed in such a way that when they are added
together, the original time series can be obtained
Classical decomposition
SMOOTHING BASED
METHODS
Simple Forecasting Methods
