Question

Define the following time series components: ● Trend ● Seasonality ● Cyclic ● Random

Answer 1

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Trend

The trend shows the general tendency of the data to increase or decrease during a long period of time. A trend is a smooth, general, long-term, average tendency. It is not always necessary that the increase or decrease is in the same direction throughout the given period of time.

It is observable that the tendencies may increase, decrease or are stable in different sections of time. But the overall trend must be upward, downward or stable. The population, agricultural production, items manufactured, number of births and deaths, number of industry or any factory, number of schools or colleges are some of its example showing some kind of tendencies of movement.

Linear and Non-Linear Trend

If we plot the time series values on a graph in accordance with time t. The pattern of the data clustering shows the type of trend. If the set of data cluster more or less round a straight line, then the trend is linear otherwise it is non-linear (Curvilinear).

Periodic Fluctuations

There are some components in a time series which tend to repeat themselves over a certain period of time. They act in a regular spasmodic manner.

Seasonal Variations

These are the rhythmic forces which operate in a regular and periodic manner over a span of less than a year. They have the same or almost the same pattern during a period of 12 months. This variation will be present in a time series if the data are recorded hourly, daily, weekly, quarterly, or monthly.

These variations come into play either because of the natural forces or man-made conventions. The various seasons or climatic conditions play an important role in seasonal variations. Such as production of crops depends on seasons, the sale of umbrella and raincoats in the rainy season, and the sale of electric fans and A.C. shoots up in summer seasons.

The effect of man-made conventions such as some festivals, customs, habits, fashions, and some occasions like marriage is easily noticeable. They recur themselves year after year. An upswing in a season should not be taken as an indicator of better business conditions.

Cyclic Variations

The variations in a time series which operate themselves over a span of more than one year are the cyclic variations. This oscillatory movement has a period of oscillation of more than a year. One complete period is a cycle. This cyclic movement is sometimes called the ‘Business Cycle’.

It is a four-phase cycle comprising of the phases of prosperity, recession, depression, and recovery. The cyclic variation may be regular are not periodic. The upswings and the downswings in business depend upon the joint nature of the economic forces and the interaction between them.

Random or Irregular Movements

There is another factor which causes the variation in the variable under study. They are not regular variations and are purely random or irregular. These fluctuations are unforeseen, uncontrollable, unpredictable, and are erratic. These forces are earthquakes, wars, flood, famines, and any other disasters.

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