Time Series Plot of Number Of Passsengers

2400

Number Of Passsengers

2200
2000
1800
1600
1400
1200
1000
1970

1974

1978

1982

1986

1990 1994
Year

1998

2002

2006

2010

The time series plot shows that it is non-stationary in the mean

Autocorrelation Function: Number Of Passsengers
Lag
1
2
3
4
5
6
7
8
9
10
11

ACF
0.913629
0.813169
0.701879
0.575634
0.444891
0.331642
0.229202
0.132921
0.049495
-0.012146
-0.062518

T
5.92
3.23
2.28
1.67
1.21
0.87
0.59
0.34
0.13
-0.03
-0.16

LBQ
37.62
68.17
91.52
107.63
117.52
123.16
125.94
126.90
127.03
127.04
127.27

ACF for actual data

1.0
0.8

Autocorrelation

0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
1

6
Lag

10

11

The ACF also shows a pattern typical for a non-stationary series :

-

Large significant ACF for the first 3 time lag

Slow decrease in the size of the autocorrelations

Partial Autocorrelation Function: Number Of Passsengers

Lag
1
2
3
4
5
6
7
8
9
10
11

PACF
0.913629
-0.130375
-0.115722
-0.150196
-0.096357
0.030808
-0.019643
-0.058449
-0.030811
0.030860
-0.016707

T
5.92
-0.84
-0.75
-0.97
-0.62
0.20
-0.13
-0.38
-0.20
0.20
-0.11

PACF for actual data

1.0

Partial Autocorrelation

0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
1

6
Lag

10

11

The PACF also shows a pattern typical for a non-stationary series :

-

Partial autocorrelation at time lag 1 is close to one and the partial

autocorrelation for the time lag lag 2 through 11 are close to zero.

The non-stationary pattern in this time series data needs to be removed in order
that other correlation structure present in this series can be seen before proceeding
with model building.

After 1st difference :

Time Series Plot of First Differencing

200

Number Of Passengers

150
100
50
0
-50
-100
1970

1974

1978

1982

1986

1990 1994
Year

1998

2002

2006

2010

The time series plot still show that it is non-stationary in the mean.
Futhermore, the ACF and PACF plot also display a pattern typical for non-stationary
pattern.
Autocorrelation Function: First Differencing
Lag
1
2
3
4
5
6
7
8
9
10

ACF
0.734733
0.487689
0.479041
0.443509
0.258246
0.194967
0.180500
0.129210
0.132741
0.163656

T
4.70
2.17
1.92
1.64
0.90
0.66
0.61
0.43
0.44
0.54

LBQ
23.79
34.54
45.19
54.56
57.83
59.74
61.43
62.33
63.30
64.82

ACF for First Differencing

1.0
0.8

Autocorrelation

0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
1

Lag

Partial Autocorrelation Function: First Differencing

Lag
1
2
3
4
5
6
7
8
9
10

PACF
0.734733
-0.113313
0.359645
-0.084383
-0.186223
0.156611
-0.143996
0.081620
0.149005
-0.058482

T
4.70
-0.73
2.30
-0.54
-1.19
1.00
-0.92
0.52
0.95
-0.37

Partial Autocorrelation for First Differencing

10

PACF for First Differencing

1.0

Partial Autocorrelation

0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
1

10

Lag

So, we take 2nd difference in order to remove non-stationarity.

After 2nd difference :
Time Series Plot of Second Differencing

Second Differencing

100

50

-50

-100
1970

1974

1978

1982

1986

1990 1994
Index

1998

Autocorrelation Function: Second Differencing

Lag
1
2
3
4
5

ACF
-0.051894
-0.406670
0.030089
0.215083
-0.225791

T
-0.33
-2.57
0.16
1.18
-1.19

LBQ
0.12
7.43
7.47
9.63
12.07

2002

2006

2010

6
7
8
9
10

-0.093909
0.040648
-0.136437
-0.021661
0.242019

-0.48
0.21
-0.69
-0.11
1.21

12.51
12.59
13.57
13.60
16.88

Autocorrelation for Second Differencing

ACF for Second Differencing

1.0
0.8

Autocorrelation

0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
1

Lag

Partial Autocorrelation Function: Second Differencing

Lag
1
2
3
4
5
6
7
8
9
10

PACF
-0.051894
-0.410468
-0.025296
0.058651
-0.244226
-0.023393
-0.169438
-0.285873
-0.073463
0.038755

T
-0.33
-2.60
-0.16
0.37
-1.54
-0.15
-1.07
-1.81
-0.46
0.25

10

PACF for Second Differencing

1.0

Partial Autocorrelation

0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
1

10

Lag

The time series plot and the ACF and PACF plots indicate that the 2 nd difference has
removed the growth in the time series data.
The ACF and PACF at lag 2 is outside the limits, but it is acceptable to have about
5% of spikes fall a short distance beyond the limit due to chance.
The Partial autocorrelations decay exponentially, but because of random error
components, they do not die out to zero.
The series looks just like white noise with almost no autocorrelation or partial
autocorrelation outside 95% limits.
Because both autocorrelation and the partial correlation shows irregular pattern,
then, ARIMA model is appropriate to forecast the next 3 point.
An ARIMA (1,2,1) model is shown below.
ARIMA Model: Second Differencing
Estimates at each iteration
Iteration
0
1
2
3
4
5
6
7
8
9
10
11
12

SSE
397892
312695
296007
278353
259117
236994
212927
210647
182653
163644
154071
153161
153085

Parameters
0.100 0.100
-0.050 0.250
0.060 0.400
0.161 0.550
0.249 0.700
0.314 0.850
0.276 0.925
0.187 0.979
0.037 0.974
-0.113 0.968
-0.263 0.957
-0.317 0.950
-0.331 0.951

Unable to reduce sum of squares any further

Final Estimates of Parameters
Type
AR
1
MA
1

Coef
-0.3311
0.9511

SE Coef
0.1556
0.0909

T
-2.13
10.46

P
0.040
0.000

Differencing: 2 regular differences

Number of observations: Original series 40, after differencing 38
Residuals:
SS = 138297 (backforecasts excluded)
MS = 3842 DF = 36
Modified Box-Pierce (Ljung-Box) Chi-Square statistic
Lag
Chi-Square
DF
P-Value

12
28.3
10
0.002

24
64.7
22
0.000

36
88.1
34
0.000

48
*
*
*

Time Series Plot for Second Differencing

(with forecasts and their 95% confidence limits)

Second Differencing

200

100

-100

-200
1

10

15

20
25
Time ( point )

30

35

40

45

Forecasts from period 42

Period
43
44
45

Forecast
26.506
29.175
31.791

95 Percent Limits
Lower
Upper
-95.000 148.012
-120.394 178.745
-150.679 214.261

Below is the minitab worksheet after we add the 3 remaining data.

We found that , the actual value for second differencing for 3 remaining points are :
43 = -68
44 = 63
45 = -47