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ARIMA Models in Python Chapter1

The document provides an introduction to time series analysis and ARIMA models. It discusses the structure of AR, MA and ARMA models and how to fit an ARMA model to time series data. Key concepts covered include autoregressive processes, moving average processes, creating ARMA simulated data, and using the statsmodels library to fit ARMA models in Python.

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114 views

ARIMA Models in Python Chapter1

The document provides an introduction to time series analysis and ARIMA models. It discusses the structure of AR, MA and ARMA models and how to fit an ARMA model to time series data. Key concepts covered include autoregressive processes, moving average processes, creating ARMA simulated data, and using the statsmodels library to fit ARMA models in Python.

Uploaded by

Fgpeqw
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction to time

series and
stationarity
A RIMA MODELS IN P YTH ON

James Fulton
Climate informatics researcher
Motivation
Time series are everywhere

Science

Technology

Business

Finance

Policy

ARIMA MODELS IN PYTHON


Course content
You will learn

Structure of ARIMA models

How to t ARIMA model

How to optimize the model

How to make forecasts

How to calculate uncertainty in predictions

ARIMA MODELS IN PYTHON


Loading and plotting
import pandas as pd
import matplotlib as plt

df = pd.read_csv('time_series.csv', index_col='date', parse_dates=True)

date values
2019-03-11 5.734193
2019-03-12 6.288708
2019-03-13 5.205788
2019-03-14 3.176578

ARIMA MODELS IN PYTHON


Trend
fig, ax = plt.subplots()
df.plot(ax=ax)
plt.show()

ARIMA MODELS IN PYTHON


Seasonality

ARIMA MODELS IN PYTHON


Cyclicality

ARIMA MODELS IN PYTHON


White noise
White noise series has uncorrelated values

Heads, heads, heads, tails, heads, tails, ...

0.1, -0.3, 0.8, 0.4, -0.5, 0.9, ...

ARIMA MODELS IN PYTHON


Stationarity
Stationary Not stationary

Trend stationary: Trend is zero

ARIMA MODELS IN PYTHON


Stationarity
Stationary Not stationary

Trend stationary: Trend is zero

Variance is constant

ARIMA MODELS IN PYTHON


Stationarity
Stationary Not stationary

Trend stationary: Trend is zero

Variance is constant

Autocorrelation is constant

ARIMA MODELS IN PYTHON


Train-test split
# Train data - all data up to the end of 2018
df_train = df.loc[:'2018']

# Test data - all data from 2019 onwards


df_test = df.loc['2019':]

ARIMA MODELS IN PYTHON


Let's Practice!
A RIMA MODELS IN P YTH ON
Making time series
stationary
A RIMA MODELS IN P YTH ON

James Fulton
Climate informatics researcher
Overview
Statistical tests for stationarity

Making a dataset stationary

ARIMA MODELS IN PYTHON


The augmented Dicky-Fuller test
Tests for trend non-stationarity

Null hypothesis is time series is non-stationary

ARIMA MODELS IN PYTHON


Applying the adfuller test

from statsmodels.tsa.stattools import adfuller

results = adfuller(df['close'])

ARIMA MODELS IN PYTHON


Interpreting the test result
print(results)

(-1.34, 0.60, 23, 1235, {'1%': -3.435, '5%': -2.913, '10%': -2.568}, 10782.87)

0th element is test statistic (-1.34)


More negative means more likely to be stationary

1st element is p-value: (0.60)


If p-value is small → reject null hypothesis. Reject non-stationary.

4th element is the critical test statistics

ARIMA MODELS IN PYTHON


Interpreting the test result
print(results)

(-1.34, 0.60, 23, 1235, {'1%': -3.435, '5%': -2.863, '10%': -2.568}, 10782.87)

0th element is test statistic (-1.34)


More negative means more likely to be stationary

1st element is p-value: (0.60)


If p-value is small → reject null hypothesis. Reject non-stationary.

4th element is the critical test statistics

1 https://www.statsmodels.org/dev/generated/statsmodels.tsa.stattools.adfuller.html

ARIMA MODELS IN PYTHON


The value of plotting
Plotting time series can stop you making wrong assumptions

ARIMA MODELS IN PYTHON


The value of plotting

ARIMA MODELS IN PYTHON


Making a time series stationary

ARIMA MODELS IN PYTHON


Taking the difference

Difference: Δyt = yt − yt−1

ARIMA MODELS IN PYTHON


Taking the difference
df_stationary = df.diff()

city_population
date
1969-09-30 NaN
1970-03-31 -0.116156
1970-09-30 0.050850
1971-03-31 -0.153261
1971-09-30 0.108389

ARIMA MODELS IN PYTHON


Taking the difference
df_stationary = df.diff().dropna()

city_population
date
1970-03-31 -0.116156
1970-09-30 0.050850
1971-03-31 -0.153261
1971-09-30 0.108389
1972-03-31 -0.029569

ARIMA MODELS IN PYTHON


Taking the difference

ARIMA MODELS IN PYTHON


Other transforms
Examples of other transforms

Take the log


np.log(df)

Take the square root


np.sqrt(df)

Take the proportional change


df.shift(1)/df

ARIMA MODELS IN PYTHON


Let's practice!
A RIMA MODELS IN P YTH ON
Intro to AR, MA and
ARMA models
A RIMA MODELS IN P YTH ON

James Fulton
Climate informatics researcher
AR models
Autoregressive (AR) model

AR(1) model :
yt = a1 yt−1 + ϵt

ARIMA MODELS IN PYTHON


AR models
Autoregressive (AR) model

AR(1) model :
yt = a1 yt−1 + ϵt

AR(2) model :
yt = a1 yt−1 + a2 yt−2 + ϵt

AR(p) model :
yt = a1 yt−1 + a2 yt−2 + ... + ap yt−p + ϵt

ARIMA MODELS IN PYTHON


MA models
Moving average (MA) model

MA(1) model :
yt = m1 ϵt−1 + ϵt

MA(2) model :
yt = m1 ϵt−1 + m2 ϵt−2 + ϵt

MA(q) model :
yt = m1 ϵt−1 + m2 ϵt−2 + ... + mq ϵt−q + ϵt

ARIMA MODELS IN PYTHON


ARMA models
Autoregressive moving-average (ARMA) model

ARMA = AR + MA

ARMA(1,1) model :
yt = a1 yt−1 + m1 ϵt−1 + ϵt

ARMA(p, q)

p is order of AR part

q is order of MA part

ARIMA MODELS IN PYTHON


Creating ARMA data
yt = a1 yt−1 + m1 ϵt−1 + ϵt

ARIMA MODELS IN PYTHON


Creating ARMA data
yt = 0.5yt−1 + 0.2ϵt−1 + ϵt

from statsmodels.tsa.arima_process import arma_generate_sample

ar_coefs = [1, -0.5]


ma_coefs = [1, 0.2]

y = arma_generate_sample(ar_coefs, ma_coefs, nsample=100, sigma=0.5)

ARIMA MODELS IN PYTHON


Creating ARMA data
yt = 0.5yt−1 + 0.2ϵt−1 + ϵt

ARIMA MODELS IN PYTHON


Fitting and ARMA model
from statsmodels.tsa.arima_model import ARMA

# Instantiate model object


model = ARMA(y, order=(1,1))

# Fit model
results = model.fit()

ARIMA MODELS IN PYTHON


Let's practice!
A RIMA MODELS IN P YTH ON

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