Gathering data is important for effective functionality. Every company or business, no matter how big or small it is, needs to collect data and study it. This leads to fruitful results in the future since data orients a company towards the most efficient path to take. Long story short, data is nothing but a compass that points toward the most appropriate action plan.
However, there’s another aspect that companies ought to look for when running a business: time. Time is limited, and results are always measured by how well we use it. As a result, there exists a specific way of analyzing data called time series analysis. Here we’ll show you what time series analysis is exactly, and how it works.
What is Time Series Analysis?
Time series analysis is a form of data analysis in which time has a central focus. In other words, a sequence of data is gathered over a certain period of time and then analyzed. These data points are studied at consistent, specific intervals during a specific period of time, but never through randomness.
Naturally, gathering data is just the first step. The goal of time series analysis is to check how variables change over time. This allows finding how the data adjusts over the data points. But how can this help you and your business?
Behind The Numbers
Numbers are a result, but a result of what? The answer relies on time series analysis. This system helps to comprehend the reason behind certain trends and patterns. It’s a way of discovering why these trends appear to begin with, and when they will appear the following year.
Forecasting
Forecasting is one of the main reasons why time series analysis is so useful. Time series forecasting can predict future events, speculate on emerging trends, and clean up data results. This is useful for companies who want to make a profit during specific periods of time. After all, by comparing past and present data, one can theorize which periods will be more effective for selling, investing, or trading.
However, there’s yet another factor that makes forecasting a relevant feature of time series analysis. Forecasting is helpful not only to make a profit but to avoid losing it. For example, thanks to time series analysis, you can predict when the price of a cryptocurrency will go down, and take your earnings before you lose money.
The Future’s Uncertain
Time series analysis has lots of benefits. However, you must remember that nothing’s guaranteed in the future. Although patterns could indicate whether taking an action is safe or not, the chances of failing on such a prediction are still high. After all, inaccurate results are a constant, not because the model fails, but because the future’s uncertain, and because most people don’t take into account other factors.
One of those factors is the Look Ahead Bias. This is when companies use data that isn’t still available, or when entrepreneurs get overconfident in their current models, not reflecting on other variants. It’s a must to fully understand the Look Ahead Bias, and how to prevent its damage for your analysis, otherwise, the consequences could be beyond recall. Be wise, and learn from the mistakes of others.
Common Examples
Among the many areas that time series analysis covers we find weather data, temperature readings, stock prices, interest rates, and heart rates. All in all, it seems that this analysis applies not only to business but to other fields as well, including science and education. Remember, if it’s always changing, then time series analysis will probably be helpful.
Although time series analysis will grant a considerable advantage for investors and businesspeople, you must remind yourself of the dangers behind the system. The problems, however, are not strictly related to the system, but to the people who analyze it. Be patient, and soon you’ll reap your harvest.
