Date:
10-5-2015
To:
Dr. Stephen Allen
From:
Mukhamed Rashidov
Re:
Take Home –Forecasting Methods
First we looked at 3 and 5 periods Moving Averages and found the MAD to be 43.33 and 44.3 respectively which is pretty high taking into consideration the max (190) and min (20) values for sales (response variable). The forecasts for both methods used are shown in the Table below. Weighted Moving Average with the same periods resulted in even higher MAD which disproved the effectiveness of WMA method in this case (refer to the Table below for results) because the MAD was even higher than MAD found with moving average. Next, we examined whether exponential smoothing is suitable or not, the results revealed that neither exponential smoothing (with alphas = .1 which puts emphasis on more recent data and .9 which has more weight on old data) nor exponential smoothing with trend adjustment (beta =.1) are good models to use in this case even though MAD for ES and ES/TA methods turned out to be 38.2 and 38.25 respectively which is lower compared to other methods so far. We conducted sensitivity analysis in order to find appropriate betas and alphas; beta of .1 and alpha of .1 showed the lowest MAD relative to other levels of betas and alphas.
Trend projection and TP with Season Adjustment resulted in MAD of 36.1 and 34.9 which is lower compared to the previous methods; forecasts for period 49 were
91.32 and 87.26 respectively.
Simple regression analysis using QWE index as predictor of sales showed R-square of about 94% which means that the model fits data well and is a good model to consider; prediction of period 49 was 193.978 and the MAD 7.9 which is much better compared to all the other previous methods used. Comparatively the CLR using RTY index showed less promising output as the R-square turned out to be only 9.6%. We also checked RTY index for leading indicators and found that it has a two period leading indicator that produced output with R-square of 99.85% and
correlation coefficient of 99.9%. MAD in this case was calculated to be only
