Time series graphs……. SMOOTHING

Raw data

To find the trend a process of ‘smoothing’ the times series data is used. In a simple form this would involve averaging out the highs and lows.

If the data were quarterly, 4 data points would be used in the average. Every group of 4 points would be averaged. We sometimes call this a ‘moving mean’ because the first average value would be the average of points 1, 2, 3, 4 the second average would be points 2, 3, 4, 5 and the third average would be points 3, 4, 5, 6 Do worksheet now

In fact, the software that we will be using employs a more complex way of smoothing the data, called the Seasonal Lowess Model

Seasonal Lowess Model iNZight uses Seasonal Lowess Model to produce smoothed values. A weighted least squares regression line is fitted to points inside the window. The point at the target X value becomes the Smoothed value. Smaller weights at edge of window

The window is slid along the graph and the next smooth value is calculated. The smoothed values form the trend. You are not expected to understand the calculations , or to do them manually.

Time series without obvious seasonal patterns may also be smoothed. http://www.google.com/finance?q=NASDAQ:AAPL