Chapter 6 Time series decomposition
Time series data can exhibit a huge variety of patterns, and it is helpful to try to split a time series into several components, each representing one of the underlying categories of patterns.
In Section 2.3 we discussed three types of time series patterns: trend, seasonality and cycles. When we decompose a time series into components, we usually combine the trend and cycle into a single “trend-cycle” component (sometimes called the “trend” for simplicity). Thus we think of a time series as comprising three components: a trend-cycle component, a seasonal component, and a remainder component (containing anything else in the time series).
In this chapter, we consider some common methods for extracting these components from a time series. Often this is done to help improve understanding of the time series, but it can also be used to improve forecasts.