Moving Average in Forecasting | |||
Description |
| ||
Why to use | The Moving Average is used with time-series for forecasting. | ||
When to use | To analyze trends in linear or non-linear time-series data | When not to use |
|
Prerequisites | A time-series data should not contain null or missing values. | ||
Input | Any dataset that contains time-series data | Output |
|
Statistical Methods Used |
| Limitations | Cannot identify the time series components |
Consider a time-series data containing the following annual sales figures. We calculate the Moving Average over three years, for years 2015-2016-2017, 2016-2017-2018, and 2017-2018-2019. These values are given in the table below.
Year | Sales (In Millions) | Moving Average (Three Year Average) |
2015 | 5.0 | NA |
2016 | 5.4 | NA |
2017 | 5.7 | (5.0 + 5.4 + 5.7) / 3 = 5.366 |
2018 | 6.1 | (5.4 + 5.7 + 6.1) / 3 = 5.733 |
2019 | 6.4 | (5.7 + 6.1 + 6.4) / 3= 6.066 |