Time Series 101: Understanding the Fundamentals

A ‘for dummies’ version of time series

What is time series data?

Sequential data ordered by time/Observations collected at regular intervals.

Ex: Data collected at regular intervals such as the monthly sales data from a vendor so as to better understand the pattern of sales/revenue to manage inventory readiness and profits.

Another example is the sensor data collected at regular intervals in IOT devices and other electronic appliances such as Air Conditioners.

Key Concepts of Time Series

Trends

Seasonality

Cyclic

Stationary

Trends

The trend shows the overall growth, the above trend is in a positive direction (minus the COVID induced dip) with little/high fluctuation or seasonality. Models like Arima assumes that there is no trend in data, hence we do decomposition on our data to remove the trend.

Seasonality

Seasonality talks about the characteristic of the data to show repetitive and predictable changes over multiple intervals of time. Almost all the data contains seasonality. We have two types of seasonality — Additive and Multiplicative seasonality. In Additive Seasonality, the seasonal effect magnitude of the data is constant. Whereas in Multiplicative Seasonality, the magnitude is not constant ex- Amazon sales data every year in December. For additive, the seasonal component added is absolute in nature, while for multiplicative it is proportional in nature (proportional to the value at that point.

Cyclic

Cyclic refers to the fluctuations around the trend, excluding the irregular component, revealing a succession of phases of expansion and contraction. It is not to be confused with seasonality. Seasonality has a fixed time period whereas cyclic does not. Ex: Travel/Tourism industry data affected by COVID

Stationary

A stationary time series is one whose properties do not depend on the time at which the series is observed. Thus, time series with trends, or with seasonality, are not stationary. The mean, variance and standard deviation of a stationary data remains constant.

Hope this explains the very basics of time series to the uninitiated. Happy Learning!