What is Time Series and Components of Time Series

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What is Time Series

Time series is a sequence of data points organized in time order.

The sequence captures data at equally spaced points in time. These data points which are tracked and collected over time are used to forecast future values.

In time series the order of the data matters and changing the order could change the order of the data.

For example: There’s an ice-cream seller and they wants to track how many ice-creams they have sold. These sales of ice-cream could be tracked in two ways:

• Non time-series way -> Here, they will track the sales based on the temperature of the day. So, if the seller wants to predict their sales they will predict it based on the past temperature of any given day.
• Time-series way -> Here, they will track the sales based on the sales of previous days. So, if the seller wants to predict their future sales they will predict it based on the past sales.

Components of Time Series

1. Trend component: The trend is the long-term pattern of a time series. A trend can be positive or negative depending on whether the time series exhibits an increasing long-term pattern or a decreasing long-term pattern. If a time series does not show an increasing or decreasing pattern then the series is stationary in the mean. We can have: Upward trend — Downward trend — Stationary/Horizontal trend
2. Cyclical component: Any pattern showing an up and down movement around a given trend is identified as a cyclical pattern. The duration of a cycle depends on the type of business or industry being analyzed.
3. Seasonal component: Seasonality occurs when the time series exhibits regular fluctuations during the same month (or months) every year, or during the same quarter every year. For example, retail sales peak during the month of December.
4. Irregular component: This component is unpredictable. Every time series has some unpredictable component that makes it a random variable. In prediction, the objective is to “model” all the components to the point that the only component that remains unexplained is the random component.

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References

• https://youtu.be/ZoJ2OctrFLA
• https://cmapskm.ihmc.us/rid=1052458821502_1749267941_6906/components.pdf
• https://itfeature.com/time-series-analysis-and-forecasting/components-of-time-series

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