Statistical Forecasting

Techniques

D.Rehab Shehata
Statistics, Mathematics, And
Insurance Department
 Some important statistical tools used for forecasting
To summarize, suppose there are n observations and the individual
observations are denoted by 𝑌𝑖 𝑓𝑜𝑟 𝑖 = 1, … , 𝑛. Then the univariate
statistics (summary numbers) that will be used in this text are defined
(generally) as follows:
 Some important statistical tools used for forecasting
Example (1.1): Consider the mileage of the 19 Japanese cars given in
the following Table. The vehicles have been numbered from 1 to 19 for
easy reference.
 Some important statistical tools used for
forecasting
Univariate data: For a single data set (univariate data) or a single time
series, the most common descriptive statistics are the mean, the
standard deviation, and the variance.
Bivariate data: For a pair of random variables (bivariate data) it is of
interest to describe how the two data sets relate to each other. The most
widely used summary numbers (statistics) for this purpose are the
covariance and the correlation.
 Some important statistical tools used for forecasting

The two “vital” statistics for bivariate data sets are: Covariance and
Correlation
 Some important statistical tools used for forecasting
Example(1.2): The following table shows the price and mileage for the
Japanese cars given in the previous example.
 Forecast Accuracy Measures

How to measure the suitability of a particular forecasting

method for a given data set?
In most forecasting situations, accuracy is treated as the overriding
criterion for selecting a forecasting method. In many instances, the
word “accuracy” refers to “goodness of fit”, which in turn refers to
how well the forecasting model is able to reproduce the data that
are already known. To the consumer of forecasts, it is the accuracy
of the future forecast that is most important.
 Forecast Accuracy Measures
If 𝑌𝑡 is the actual observation for time period t and 𝐹𝑡 is the forecast
for the same period, then the error is defined as

Or
If there are observations and forecasts for n time periods, then there
will be n error terms, and the following standard statistical
measures can be defined:
 Forecast Accuracy Measures
Example (1.3): The following table shows the last 8 months of
observations (January to August 2018). The second column shows
forecasts for these values, obtained using a very simple method.
 Forecast Accuracy Measures
Each of the previous statistics deals with measures of accuracy whose size
depends on the scale of the data. Therefore, they do not facilitate comparison
across different time series and for different time intervals. To make
comparisons like these, we need to work with relative or percentage error
measures. First we need to define a relative or percentage error as

Then the following two relative measures are frequently used:

 Forecast Accuracy Measures
Example (1.4): Using the data in the previous example, find PE, MPE,
MAPE
 Forecast Accuracy Measures
U-Theil's statistic
It is a proportional measure. Compare two forecast methods; simple
model (naïve model) and more advanced model.

We can conclude that, if:

1. U = 1, the simple model is sufficient.
2. U < 1, the simple model is not sufficient. The more small U, the more
insufficient the simple model.
3. U > 1, the simple method gives better results.
 Forecast Accuracy Measures
Example (1.5): Using the data in the previous example, find U-Theil's
statistic