UNIT 15 STATIONARY PROCESSES

Structure
15.1 Introduction
Objectives
15.2 Stationary Processes
Stationary Process
Strict Stationary Process
Weak Stationary Process
15.3 Autocovariance and Autocorrelation
Autocovariance and Autocorrelation Coefficients
Estimation of Autocovariance and Autocorrelation Coefficients
15.4 Correlogram of Stationary Processes
Interpretation of Correlogram
15.5 Summary
15.6 Solutions / Answers

15.1 INTRODUCTION
In Units 13 and 14, you have learnt that a time series can be decomposed
into four components, i.e., Trend (T), Cyclic (C ), Seasonal (S) and Irregular
(I) components. We have discussed methods for smoothing or filtering the
time series and for estimating Trend, Seasonal and Cyclic components. We
have also explained how to use them for forecasting.

In this unit, we describe a very important class of time series, called the
stationary time series. In Sec. 15.2, we explain the concept of stationary
process and define weak and strict stationary processes. We discuss
autocovariance, autocorrelation function and correlogram of a stationary
process in Secs. 15.3 and 15.4. If a time series is stationary, we can model it
and draw further inferences and make forecasts. If a time series is not
stationary, we cannot do any further analysis and hence cannot make
reliable forecasts. If a time series shows a particular type of non-stationarity
and some simple transformations can make it stationary, then we can
model it.

In the next unit, we shall discuss certain stationary linear models such as
Auto Regressive (AR), Moving Average (MA) and mixed Autoregressive
Moving Average (ARMA) processes. We shall also discuss how to deal
with models with trend by considering an integrated model called
Autoregressive Integrated Moving Average (ARIMA) model.

Objectives
After studying this unit, you should be able to:
 describe stationary processes;
 define weak and strict stationary processes;
 define autocovariance and autocorrelation coefficients;
 estimate autocovariance and autocorrelation coefficients;
 plot the correlogram and interpret it; and
 make proper choice of probability models for further studies.
55
Time Series Modelling
15.2 STATIONARY PROCESSES
In the course MST-004, you have studied random variables and their
properties. Recall that a random variable Y is a function defined on a sample
space. A family of random variables defined on the same sample space
taking values over time is known as a random process. Most physical
processes in real life situations involve random components or variables and
a random process may be described as a statistical phenomenon that evolves
in time. A random process may be defined as a family of random variables
defined on a given probability space indexed by the parameter t. Here we
denote a stochastic variable by the capital letter Y and assume that it is
observable at discrete time points t1, t2, ....
A random process is a statistical phenomenon that evolves in time according
to some laws of probability. The length of queue in a system, the number of
accidents in a particular city in successive weeks, etc. are examples of a
random process. Mathematically, a random process is defined as the family
of random variables which are ordered in time, i.e., random process {Y(t); t
belongs to T} is a collection of random variables, where T is a set for which
all random variables Yt are defined on the same sample space. If T takes
continuous range of values, the random process is said to be a continuous
parameter process. On the other hand, if T takes discrete set of values, the
process is said to be a discrete parameter process. We use the notation Yt
for a random process when we deal with discrete parameter processes.
When T represents time, the random process is referred to as a time series.
In Units 13 and 14, we have dealt with one set of observations recorded at
different times. Thus, we had only a single outcome of the process and a
single observation on the random variable at time t. This sample may be
regarded as one time series out of the infinite set of time series, which might
have been observed. This infinite set of time series is called an Ensemble.
Every member of the ensemble can be taken as a possible realisation of the
stochastic process and the observed time series can be considered as one
particular realisation.

15.2.1 Stationary Process

Broadly speaking, a time series is said to be stationary if there is no
systematic change in mean, variance and covariance of the observations
over a period of time. This means that the properties of one section of the
time series are similar to the properties of the other sections of the time
series. In other words, a process is said to be stationary if it is in a state of
statistical equilibrium.
A random process is said to be stationary if the joint distribution of
Yt1, Yt2, Yt3, …, Ytk is the same as the joint distribution of Yt1+J, Yt2+J, Yt3+J,
..., Ytk+J, for all t1, t2, ..., tk and J. In other words, shifting the origin of time by
an amount J has no effect on the joint distribution. This means that it
depends only on the interval between t1, t2, …, tk. This definition holds for
any value of k.
For k =1,
E(Yt) = µ and V(Yt) = σ2
This implies that the mean and variance of Yt are constant and do not
depend on time.
For k = 2, the joint distribution of Yt1 and Yt2 depends only on the time
56 difference (t2 − t1) = J, say, which is called lag.
Thus, the covariance term depends only on lag J = t2 − t1, i.e., Stationary Processes

γ (t1, t2) = E[(Yt – µ) (Yt +J – µ)]

= Cov (Yt, Yt +J)

The variance function is a special case of the covariance function when

t1= t2, i.e., J = 0.
There are two types of stationary processes: Strict stationary processes and
weak stationary processes. Let us discuss them one at a time.

15.2.2 Strict Stationary Process

Strict stationary process imposes the strong condition that the joint
probability distribution remains the same and depends only on the time
interval. If all the finite dimensional distributions of a random process are
invariant under translation of time, then it is called a Strict Sense
Stationary process or SSS process. In other words, if the joint distribution
of Yt1, Yt2, …, Ytk is the same as the joint distribution of Yt1+J, Yt2+J,..., Ytk+J,
for all t1, t2, ..., tk and J (> 0) for all k ≥ 1, the random process Yt is called a
Strict Sense Stationary process.
The strict stationary process requires that for any t1 , t2, the distributions of
Yt1 and Yt2 for all i = 1, 2, …, n must be the same. Also, the bivariate
distributions of pairs [Yt1, Yt1+J] and [Yt2, Yt2+J] are the same for all
i = 1, 2, …, n and J.
Note that the requirement of strict stationarity is a severe one. Usually it is
difficult to establish it mathematically and in most cases, the distributions of
[Yti, Yti+J] for all i = 1, 2, …, n and J are not known. That is why, the less
restrictive notions of stationarity called weak stationary processes have
been developed.

15.2.3 Weak Stationary Process

A stationary process is said to have weak stationarity of order m, if the
moments up to order m depend only on time lag J. If m = 2, the stationarity
(or weak stationarity) of order 2 implies that moments up to the second
order depend only on time lag J. For a weak stationary process:

E[yt] = µ;

and Cov[Yt, Yt +J] = γ(J)

No requirements are placed on the moments of higher order. The definition

also implies that the mean and variance remain constant and finite. Thus, a
random process Yt with finite first and second order moments is called a
weak stationary process, if the means are constant and the covariance
depends only on the time lag.

In the subsequent discussion in this unit, we shall assume weak stationarity

as many properties of a stationary process depend only on the first and
second order moments. One important class of processes is the normal
process, where joint distributions of Yt1, Yt2, ..., Ytk are multivariate normal
for all t1, t1, ..., tk. This multivariate normal distribution is completely
characterised by its first and second moments, i.e., µt and γ(t1, t2).
57
Time Series Modelling
15.3 AUTOCOVARIANCE AND
AUTOCORRELATION
In this section, we discuss the autocovariance and autocorrelation function
for a stationary process. Of particular interest in the analysis of a time series
are the covariance and correlation between Yt1 and Yt2. Since these are the
covariance and correlation within the same time series, they are called
autocovariance and autocorrelation. Some important properties of time
series can be studied with the help of autocovariance and autocorrelation.
They measure the linear relationship between observations at different time
lags. They provide useful descriptive properties of the time series being
studied and are important tools for guessing a suitable model for the time
series data. Let us define these parameters.
15.3.1 Autocovariance and Autocorrelation Coefficients
Suppose a weak stationary time series process is denoted by Y1, Y2, …, Yt,
Yt+1, …, Yt+k, …. We are interested in finding the linear relationship
between two consecutive observations, Yt, Yt+1. We are also interested in
the relationship between observations that are apart by a time lag k, e.g., Yt
and Yt+k . We shall study the linear relationship by studying covariances and
correlations of observations at different time lags.

In the course MST-002, you have learnt how to calculate the covariance and
correlation between two variables for given N pairs of observations on two
variables X and Y, say {(x1, y1), (x2, y2), …, (xN, yN). Recall that the
formulas for computation of covariance and correlation coefficient are given
as:
Cov  X, Y   E  X     Y    

E  X     Y     Cov X, Y 

(X,Y )  
2
E  X    E  Y     2 XY
 
Here we apply analogous formulas to the stationary time series data to
measure whether successive observations are correlated.
The autocovariance between Yt and Yt+k, separated by the time interval k,
for a stationary process must be the same for all t and is defined as:
 k   k  Cov Yt , Yt  k   E Yt  k   Yt    …(1)
Similarly, the autocorrelation at lag k is
E  Yt k     Yt    
k 
 E  Yt k    2 E  Yt    2 
 

Cov Yt , Yt  k 
 … (2)
 2Y
From equation (1), we note that
 2Y   0 … (3)

k
Therefore, k  and 0  1 … (4)
0
58
 Stationary Processes
15.3.2 Estimation of Autocovariance and Autocorrelation
Coefficients
So far, we have defined the autocovariance and autocorrelation coefficients
for a random process. You would now like to estimate them for a finite time
series for which N observations y1, y2, ..., yN are available. We shall denote
a realisation of the random process Y1, Y2, …, YN by small letters y1, y2, ...,
yN. The mean µ can be estimated by
N
y   yi N … (5)
i 1

and autocovariance γk at lag k can be estimated by the autocovariance

coefficient ck as follows:
N k
c k   y t  y y t k  y  N  k  , for all k … (6)
t 1

The sample covariance is a special case of autocovariance when

k = 0, i.e.,
N N
2
c 0   y t  y y t  y  N   y t  y  N   2Y , for all k
t 1 t 1

The autocorrelation coefficients (rk) are usually calculated by computing the

series of autocovariance coefficients (ck) as follows:
ck c
rk   k2 … (7)
c0 Y
In practice, at least 50 observations are required for the estimation of
correlations. It is also advisable that for calculations of rk, the lag k should
not exceed N/4.
Let us explain these concepts with the help of an example.
Example 1: A series of 10 consecutive yields from a batch chemical process
are given as follows:
47, 64, 23, 71, 38, 64, 55, 41, 59, 48
Calculate the mean, autocovariance c1 and autocorrelation coefficient r1 for
the given time series.
Solution: We first construct the following table:
S. No. Y Y2
( Y - Y)
t ( Y - Y) ( Y
t t +1 -Y )
1 47 2209 −4
2 64 4096 13 −52
3 23 529 −28 −364
4 71 5041 20 −560
5 38 1444 −13 −260
6 64 4096 13 −169
7 55 3025 4 52
8 41 1681 −10 −40
9 59 3481 8 −80
10 48 2304 −3 −24
Total
åy i = 510 å y 2i = 27906 å ( Y - Y)( Y
t t +1 )
- Y = −1497

59
Time Series Modelling From equation (5), we get
N

y
i 1
i
510
y   51.0
10 10
From equation (6), for k=0, the autocovariance coefficient is
Nk
2
 y
t 1
i  y
 y 2
i  Ny 2 
c0  
N N
(27906  26010)
  189.6
10
For k = 1,
9

 y
t 1
t  y  y t 1  y 
c1  = – 166.33
9
From equation (7),
c1 166.33
r1    0.88
c2 189.6
You may now like to solve a problem to assess your understanding.
E1) Ten successive observations on a stationary time series are as
follows:
1.6, 0.8, 1.2, 0.5, 0.6, 1.5, 0.8, 1.2, 0.5, 1.3.
Plot the observations and calculate r1.
E2) Fifteen successive observations on a stationary time series are as
follows:
34, 24, 23, 31, 38, 34, 35, 31, 29,
28, 25, 27, 32, 33, 30.
Plot the observations and calculate r1.

15.4 CORRELOGRAM OF STATIONARY

PROCESSES
A useful plot for interpreting a set of autocorrelations coefficient is called a
correlogram in which the sample autocorrelation coefficients rk are plotted
versus the lag J where J=1, 2, 3, …, k. This helps us in examining the nature
of time series. It is also a very important diagnostic tool for the selection of a
suitable model for the process which generates the data. The correlogram is
alternatively known as the sample autocorrelation function (acf).
The value of lag J is usually much less than N. For example, a time series of
length N = 200 given in Fig 15.1a shows the plot of the time series for N=200
and Fig. 15.1b shows a plot of the correlogram for a lag up to order 17.
The relatively smooth nature of the time series plot indicates that
observations which are close to each other (at smaller lags) are positively
correlated. The correlogram suggests that observations with smaller lag are
positively correlated and autocorrelation decreases as lag k increases.
60
In most time series, it is noticed that the absolute value of rk, i.e., | rk| Stationary Processes
decreases as k increases. This is because observations which are located far
away are not related to each other, whereas observations lying closer to each
other may be positively (or negatively) correlated.

(a)

(b)

Fig. 15.1: a) Plot of a time series for N = 200; b) correlogram for lag k = 1, 2, .., 17.

15.4.1 Interpretation of Correlogram

Sometimes it is possible to recognise the nature of a time series from its
correlogram, though it is not always easy. We shall describe certain types of
time series processes and the nature of their correlograms. If the correlogram
of a time series is one of these types, it is possible to get a good idea of the
process which gave rise to that time series.
Random Series
In case all observations are completely random, i.e., they contain only
independent observations, the series is called a random series.
This means that rk ≈ 0 for all non zero k. The correlogam of such a random
series will be oscillating around the axis (zero line). In fact, for such a series,
for large N, the values of rk approximately follow the N(0,1/N) distribution.
Thus, in about 95% cases, the values of rk lie in a range of ±2/√N. If the
correlogram shows such a behaviour, it is a good indication that the time
series is random. However, this behaviour may not always confirm that the
time series is random and it may need further examination.
Short-Term Correlation
Stationary time series usually has a few large autocorrelations in absolute
value for small lag k. They tend to zero very rapidly with increase in lag k
(see Fig. 15.1b). When the first few autocorrelations are positive, the time
series is smooth in nature, i.e., if an observation is above mean, it is likely to
be followed by an observation above mean and if an observation is below
mean, it is likely to be followed by an observation below mean. This gives
61
Time Series Modelling an indication of stationary time series with most of the non-zero
autocorrelations being either positive or negative.
Alternating Series
If a time series behaves in a very rough and zig-zag manner, alternating
between values above and below mean, it is indicated by a negative r1 and
positive r2. An alternating time series with its correlogram is shown in
Fig.15.2.

(a)

(b)
Fig. 15.2: a) Plot of alternating time series; b) correlogram for an alternating series
with lag up to 15.
Non-Stationary Time Series
If a time series contains trend, it is said to be non-stationary. Such a series is
usually very smooth in nature and its autocorrelations go to zero very slowly
as the observations are dominated by trend. Due to the presence of trend, the
autocorrelations move towards zero very slowly (see Fig. 15.3). One should
remove trend from such a time series before doing any further analysis.

(a)

(b)
62 Fig. 15.3: a) Plot of a non-stationary time series; b) correlogram of non-stationary series.
Seasonal Time Series Stationary Processes

If a time series has a dominant seasonal pattern, the time plot will show a
cyclical behaviour with a periodicity of the seasonal effect. If data have
been recorded on monthly basis and the seasonal effect is of twelve months,
i.e., s = 12, we would expect a highly negative autocorrelation at lag 6 (r6)
and highly positive correlation at lag 12 (r12). In case of quarterly data, we
expect to find a large negative r2 and large positive r4. This behaviour will
be repeated at r6, r8 and so on. This pattern of cyclical behaviour of
correlogram will be similar to the time plot of the data.

Years (2010-2012)

Fig. 15.4: Time plot of the average rainfall at a certain place, in successive months
from 2010 to 2012.
Therefore, in this case the correlogram may not contain any more
information than what is given by the time plot of the time series.

(a)

(b)
Fig. 15.5: a) Smoothed plot of the average rainfall at a certain place, in successive
months from 2010 to 2012; b) correlogram of monthly observations of
seasonal time series.
63
Time Series Modelling Fig. 15.5a shows a time plot of monthly rainfall and Fig. 15.5b shows the
correlogram. Both show a cyclical pattern and the presence of a strong 12
monthly seasonal effect. However, it is doubtful that in such cases the
correlogram gives any more information about the presence of seasonal
effect as compared to the time plot shown in Fig 15.4.
In general, the interpretation of correlogram is not easy and requires a lot of
experience and insight. Estimated autocorrelations (rk) are subject to
sampling fluctuations and if N is small, their variances are large. We shall
discuss this in more detail when we consider a particular process. When all
the population autocorrelations ρk (k ≠ 0) are zero, as happens in a random
series, then the values of rk are approximately distributed as N(0,1/N). This
is a very good guide for testing whether the population correlations are all
zeros or not, i.e., the process is completely random or not.
Example 2: For the time series given in Example 1, calculate r1, r2, r3, r4 and
r5 and plot a correlogram.
Solution: From Example 1 and its results we have the following:
y  51.0, c 0 = 189.6, c1 = −166.33 and r1 = − 0.88
Now we form the table for the calculations as follows:
S.
No.
Y Y2  Yt – Y   Yt – Y Yt+2 – Y   Yt – Y Yt+3 – Y   Yt – Y Yt+4 – Y  Yt – Y Yt+5 – Y
1 47 2209 −4
2 64 4096 13
3 23 529 −28 112

4 71 5041 20 260 −80

5 38 1444 −13 364 −169 52
6 64 4096 13 260 −364 169 −52

7 55 3025 4 −52 80 −112 52

8 41 1681 −10 −130 130 −200 280
9 59 3481 8 32 104 −104 160

10 48 2304 −3 30 −12 −39 39

Total 510 27906 876 −311 −234 479

We now calculate the autocorrelation coefficients r 2, r3, r4 and r5 as follows:

For k = 2, we get

c2  
8
 y t  y   y t2  y 
t 1 8

= 876/8 = 109.5
c2
r2  = 109.5/ 189.6 = 0.58
c0

For k = 3, we get
7

y
t 1
t  y   y t 3  y 
c3 
64 7
 = –311/7 = –44.43 Stationary Processes

c3
r3  = −44.43/ 189.6 = −0.2343
c0
For k = 4, we get
6

 y
t 1
t  y   y t 4  y 
c4 
6
= −234/6 = −39
c4
r4  = −39/ 189.6 = −0.2057
c0
For k = 5, we get
5

 y
t 1
t  y   y t 5  y 
c5 
5
= 479/5 = 95.8
c5
r5  = 95.8/ 189.6 = −0.5052
c0
Thus, we have obtained the autocorrelation coefficients r1, r2, r3, r4 and r5
as r1= –0.88, r2 = 0.58, r3 = −0.2343, r4 = −0.2057, r5 = −0.5052,
respectively.

Now we plot the correlogram for the given time series by plotting the values
of the autocorrelation coefficients versus the lag k for k = 1, 2, …, 5. The
correlogram is shown in Fig. 15.6.

Fig. 15.6: Correlogram for the given time series.

Example 3: A computer generates a series of 200 observations that are

supposed to be random. The first 10 sample autocorrelation coefficients of
the series are:
r1 = 0.02, r2 = 0.05, r3 = –0.09, r4 = 0.08, r5 = –0.02, r6 = –0.07,
r7 = 0.12, r8 = 0.06, r9= 0.02, r10 = –0.08
Plot the correlogram.
65
Time Series Modelling Solution: The correlogram for the given values of autocorrelation
coefficients is shown in Fig. 15.7.

Fig. 15.7: Correlogram for 10 sample autocorrelation coefficients of the series of 200
observations.
Example 4: A random walk (St, t = 0, 1, 2, …) starting at zero is obtained
by cumulative sum of independently and identically distributed (i.i.d)
random variables. Check whether the series is stationary or non-stationary.
Solution: Since we have a random walk (St, t = 0, 1, 2, …) starting at zero
obtained from cumulative sum of independently and identically distributed
(i.i.d) random variables, a random walk with zero mean is obtained by
defining S0 = 0 and

St = Y1 + Y2 +….+Yt, for t = 1, 2, …
where {Yt} is i.i.d. noise with mean zero and variance σ2. Then we have
2
E (St) = 0, E (St ) = tσ2 < ∞ for all t

Cov ( St, St+h) = (St, St+Yt+1+…..+Yt+h)

= Cov (St, St) = t σ2

This depends upon t and hence the series St is non-stationary.
You may now like to solve the following exercises to assess your
understanding about correlogram and stationary processes.

E3) Calculate r2, r3, r4 and r5 for the time series given in Exercise 1 and plot
a correlogram.
E4) Calculate r2, r3, r4 and r5 for the time series given in Exercise 2 and plot
a correlogram.
E5) A computer generates a series of 500 observations that are supposed to
be random. The first 10 sample autocorrelation coefficients of the
series are:
r1 = 0.09, r2 = –0.08, r3 = 0.07, r4 = –0.06, r5 = –0.05, r6 = 0.04,
r7 = –0.3, r8 = 0.02, r9= –0.02, r10 = –0.01
Plot the correlogram.
66
Let us now summarise the concepts that we have discussed in this unit. Stationary Processes

15.5 SUMMARY
1. A time series is said to be stationary if there is no systematic change in
mean, variance and covariance of the observations over a period of time.
If a time series is stationary, we can model it and draw further inferences
and make forecasts. If a time series is not stationary, we cannot do any
further analysis and make reliable forecasts. If a time series shows a
particular type of non-stationarity and some simple transformations can
make it stationary, then we can model it.

2. A random process is a statistical phenomenon that evolves in time

according to some laws of probability. Mathematically, a random
process is defined as the family of random variables which are ordered
in time, i.e., a random process {Y(t); t belongs to T} is a collection of
random variables, where T is a set for which all the random variables Yt
are defined on the same sample space.
3. A random process is said to be stationary if the joint distribution of
Yt1, Yt2, Yt3,…, Ytk is the same as the joint distribution of Yt1+J, Yt2+J,
Yt3+J, ..., Ytk+J, for all t1, t2, ..., tk and J. In other words, shifting the origin
of time by an amount J has no effect on the joint distribution. This
means that it depends only on the interval between t1, t2, …, tk.
4. If all the finite dimensional distributions of a random process are
invariant under the translation of time, it is called a Strict Sense
Stationary process or SSS process. In other words, if the joint
distribution of Yt1, Yt2, …, Ytk is the same as the joint distribution of
Yt1+J, Yt2+J,..., Ytk+J, for all t1, t2, ..., tk and J (> 0) for all k ≥ 1, the random
process Yt is called a Strict Sense Stationary process.
5. A stationary process is said to have weak stationarity of order m, if
the moments up to order m depend only on the time lag J. If m = 2, the
stationarity (or weak stationarity) of order 2 implies that moments up to
the second order depend only on the time lag J.
6. Of particular interest in the analysis of a time series are the covariance and
correlation between Yt1 and Yt2. Since these are the covariance and
correlation within the same time series, they are called autocovariance and
autocorrelation. Some important properties of time series can be studied
with the help of autocovariance and autocorrelation. They measure the
linear relationship between observations at different time lags. They
provide useful descriptive properties of the time series being studied and
are important tools for guessing a suitable model for the time series data.
7. A useful plot for interpreting a set of autocorrelation coefficients is called a
correlogram in which the sample autocorrelation coefficients rk are plotted
versus the lag J where J=1, 2, 3, …, k. This helps us in examining the
nature of time series. It is also a very important diagnostic tool for selection
of a suitable model for the process which generates the data. The
correlogram is also known as the sample autocorrelation function (acf).
8. In most time series, it is noticed that the absolute value of rk, i.e., | rk|
decreases as k increases. This is because observations which are located
far away are not related to each other, whereas observations lying closer
to each other may be positively (or negatively) correlated.
67
Time Series Modelling
15.6 SOLUTIONS/ANSWERS
E1) We first plot the stationary time series values as shown in Fig. 15.8.

Stationary Time Series (Y)

1.8
1.6
1.4
1.2
1
Stationary Time
0.8
Series (Y)
0.6
0.4
0.2
0
1 2 3 4 5 6 7 8 9 10

Fig. 15.8: Plot of the given stationary time series.

For calculating r1 we first calculate the terms given in the table below:

S. No. Y Y2 ( Y - Y) ( Y - Y) ( Y
t t t +1 -Y )
1 1.6 2.56 0.6

2 0.8 0.64 −0.2 −0.12

3 1.2 1.44 0.2 −0.04
4 0.5 0.25 −0.5 −0.1

5 0.6 0.36 −0.4 0.2

6 1.5 2.25 0.5 −0.2
7 0.8 0.64 −0.2 −0.1

8 1.2 1.44 0.2 −0.04

9 0.5 0.25 −0.5 −0.1
10 1.3 1.69 0.3 −0.15

Total 10 11.52 −0.65

N
y   y i 10  10 / 10  1.0
i 1

Nk
 yi  y 2   y 2
i  N y2 
c0  
t 1
N N

= (11.52 –10)/10 = 0.152

N 1

 y
t 1
t  y y t 1  y 
 0.65
c1     0.072
N 1 9
c1
r1  = − 0.072/0.152 = − 0.475
68 c
E2) We first plot the stationary time series values as shown in Fig. 15.9. Stationary Processes

Stationary Time Series (Y)

40
35
30
25
20 Stationary Time
15 Series (Y)
10
5
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Fig. 15.9: Plot of the given stationary time series.

For the given time series we do the following calculations:
S.
Y Y2 ( Y - Y)
t ( Y - Y)( Y
t t +1 )
-Y
No.
1 24 576 −6.267
2 34 1156 3.733 −23.395
3 23 529 −7.267 −27.129
4 31 961 0.733 −5.329
5 38 1444 7.733 5.671
6 34 1156 3.733 28.871
7 35 1225 4.733 17.671
8 31 961 0.733 3.471
9 29 841 −1.267 −0.929
10 28 784 −2.267 2.871
11 25 625 −5.267 11.938
12 27 729 −3.267 17.204
13 32 1024 1.733 −5.662
14 33 1089 2.733 4.738
15 30 900 −0.267 −0.729
Total 454 14000 1.773
N
y   y i 15  454 / 15  30.267,
i 1

Nk
 yi  y 2  y 2
i  N y2 
c0  
t 1
N

N

= (14000 –13922.82)/15 = 5.145

N 1

y t 1
t  y  y t 1  y 
c1 
N 1
1.773
  0.1266
14
69
Time Series Modelling c1
r1  = 0.1266/5.145 = 0.0246
c0
E3) In Exercise 1, we have obtained the following values:
y  1.0 , c 0 = 0.152, c1   0.072 and r1 = − 0.475

S.
Y Y2 ( Y - Y) ( Y - Y) ( Y
t t t +2 -Y ) ( Y - Y)( Y
t t +3 -Y ) ( Y - Y) ( Y
t t +4 )
-Y ( Y - Y) ( Y
t t +5 -Y )
No.
1 1.6 2.56 0.60
2 0.8 0.64 −0.2
3 1.2 1.44 0.20 0.12
4 0.5 0.25 −0.50 0.10 −0.30
5 0.6 0.36 −0.40 −0.08 0.08 −0.24
6 1.5 2.25 0.50 −0.25 0.10 −0.10 0.30
7 0.8 0.64 −0.20 0.08 0.10 −0.04 0.04
8 1.2 1.44 0.20 0.10 −0.08 −0.10 0.04
9 0.5 0.25 −0.50 0.10 −0.25 0.20 0.25
10 1.3 1.69 0.30 0.06 −0.06 0.15 −0.12
10 11.52 0.23 −0.41 −0.13 0.51

We now use the same procedure to calculate the autocorrelation

coefficients r2, r3, r4 and r5 as follows:
For k = 2,
8
 yt  y  y t 2  y 
c2  
t 1
8

 0.23 8  0.02875

From equation (7),

c2
r2  = 0.02875/ 0.152 = 0.1891
c0
Similarly, r3, r4 and r5 are obtained as
r3 = –0.3371, r4 = –0.1069, r5 = 0.4194

Now to plot the correlogram for the given time series, we plot the
values of the autocorrelation coefficients versus lag k for all
k = 1, 2, …, 5. The correlogram is shown in Fig. 15.10.

70 Fig. 15.10: Correlogram for the given time series.

E4) In Exercise 2, we have obtained the following values: Stationary Processes

y  30.267 , c0 = 5.145, c1  0.1266 and r1 = 0.0246

For the given time series, we do the following calculations:
S.
Y Y2 ( Y - Y) ( Y - Y)( Y
t t t +2 ) ( Y - Y) ( Y
-Y t t +3 ) ( Y - Y) ( Y
-Y t t +4 -Y ) ( Y - Y)( Y
t t +5 )
-Y
No.
1 24 576 −6.267
2 34 1156 3.733
3 23 529 −7.267 45.538
4 31 961 0.733 2.738 −4.595
5 38 1444 7.733 −56.195 28.871 −48.462
6 34 1156 3.733 2.738 −27.129 13.938 −23.395
7 35 1225 4.733 36.604 3.471 −34.395 17.671
8 31 961 0.733 2.738 5.671 0.538 −5.329
9 29 841 −1.267 −5.995 −4.729 −9.795 −0.929
10 28 784 −2.267 −1.662 −10.729 −8.462 −17.529
11 25 625 −5.267 6.671 −3.862 −24.929 −19.662
12 27 729 −3.267 7.404 4.138 −2.395 −15.462
13 32 1024 1.733 −9.129 −3.929 −2.195 1.271
14 33 1089 2.733 −8.929 −14.395 −6.195 −3.462
15 30 900 −0.267 −0.462 0.871 1.404 0.604
Total 454 14000 26.502 −9.169 −86.64 −29.511

We now calculate the autocorrelation coefficients r2, r3, r4 and r5 as follows:

For k=2,
14
 yt  y  y t 2  y 
c2  
t 1
13
 26.502 13  2.0386

From equation (7),

c2
r2  = 2.0386/ 5.145 = 0.3962
c0
Similarly, r3, r4 and r5 may also be obtained as
r3 = –0.1485, r4 = –0.72, r5 = –0.5736
Now to plot the correlogram for the given time series, we plot the
values of the autocorrelation coefficients versus the lag k for all
k = 1, 2, …, 5. The correlogram is shown in Fig. 15.11

Fig. 15.11: Correlogram for the given time series. 71

Time Series Modelling E5) The correlogram for the given values of autocorrelation coefficients
of a stationary process is shown in Fig. 15.12.

Fig. 15.12: Correlogram for 10 sample autocorrelation coefficients of the

series of 400 observations.

72