ASSIGNMENT ON BUSINESS FORECASTING

Submitted To Komal Sharma

Submitted By Gurbachan Singh PM-3

1. Components of a time series. Any time series can contain some or all of the following components: 1. Trend (T) 2. Cyclical (C) 3. Seasonal (S) 4. Irregular (I) These components may be combined in different ways. It is usually assumed that they are multiplied or added, i.e. yt = T + C + S + I To correct for the trend in the 1st case one divides the 1st expression by the trend (T). In the second case it is subtracted. 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. 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. 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 instance, retail sales peak during the month of December.

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. 2. Linear Regression:A linear regression technique can be used if the relationship between the predictors and the target can be approximated with a straight line. Regression with a single predictor is the easiest to visualize.

Linear regression model can be expressed in the following equationY=a+bX Where a defines the value of Y when X is zero. And b defines the changes in Y. Example: To find the Simple/Linear Regression of

X Values Y Values 60 61 62 63 65 3.1 3.6 3.8 4 4.1

To find regression equation, we will use some steps that lead to the solution. Step 1: Count the number of values. N=5 Step 2: Find XY, X2 See the below table X Y Value Value 60 3.1 X*Y X*X 60 * 60 = 3600 61 * 61 = 3721 62 * 62 =

60 * 3.1 = 186 61 * 3.6 = 219.6 62 * 3.8 =

61 62

3.6 3.8

235.6 63 4 63 * 4 = 252

3844 63 * 63 = 3969 65 * 65 = 4225

65

4.1

65 * 4.1 = 266.5

Step 3: Find X, Y, XY, X2. X = 311 Y = 18.6 XY = 1159.7 X2 = 19359 Step 4: Substitute the above in the given formula. Slope (b) = (N XY - ( X)( Y)) / (N X2 - ( X)2) = ((5)*(1159.7)-(311)*(18.6))/((5)*(19359)-(311)2) = (5798.5 - 5784.6)/(96795 - 96721) = 13.9/74 = 0.19 Step 5: Now, again substitute in the above intercept formula given. Intercept (a) = ( Y - b( X)) / N = (18.6 - 0.19(311))/5 = (18.6 - 59.09)/5 = -40.49/5 = -8.098

Step 6: Then substitute these values in regression equation formula Regression Equation(y) = a + bx = -8.098 + 0.19x. Suppose if we want to know the approximate y value for the variable x = 64. Then we can substitute the value in the above equation. Regression Equation(y) = a + bx = -8.098 + 0.19(64). = -8.098 + 12.16 = 4.06

Non-linear regression model: - A non linear regression model is that in which there is one dependent variable and independent variables are more than one. It is expressed in the following equationY=a+b1X1+b2X2+b3X3 Other examples of nonlinear functions include exponential functions, logarithmic functions, trigonometric functions, power functions, Gaussian function, and Lorenz curves. Some functions, such as the exponential or logarithmic functions, can be transformed so that they are linear. When so transformed, standard linear regression can be performed but must be applied with caution. See Linearization, below, for more details. The difference between linear and nonlinear regression

Linear regression is described in every statistics book, and is performed by every statistics program. The purpose of linear regression is to find the line that comes closest to your data. More precisely, the linear regression program finds values for the slope(a) and intercept(b) that define the line that minimizes the sum of the square of the vertical distances between the points and the line. Put the data in, and the answers come out. There is no chance for ambiguity. we could even do the calculations by hand, if we wanted to. Nonlinear regression is a general technique to fit a curve through your data. It fits data to any equation that defines Y as a function of X and one or more parameters. It finds the values of those parameters that generate the curve that comes closest to the data (minimizes the sum of the squares of the vertical distances between data points and curve). Except for a few special cases, it is not possible to directly derive an equation to compute the best-fit values from the data. Instead nonlinear regression requires a computationally intensive, iterative approach. we can't really follow the mathematics of nonlinear regression unless we are familiar with matrix algebra. But we can use nonlinear regression without understanding exactly how it works. We can use nonlinear regression to describe complicated, nonlinear relationships between a response variable and one or more predictor variables. Chemists, engineers, scientists and others who want to model growth, decay, or other complex functions often need to use nonlinear regression. Minitab Statistical Software can help you harness this powerful statistical technique to model such relationships and make sound predictions. Responses that can be modeled using nonlinear regression include:

y y y y y

Infant or child weight Rate of a chemical reaction Injection molding shrinkage Flavor degradation Drug clearance through the body