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Tracking Signal Analysis

The document evaluates various forecasting models using Tracking Signal to assess their bias and reliability. Double Exponential Smoothing (α = 0.4, γ = 0.4) is identified as the best model due to its minimal bias and effectiveness in capturing trends, while Winter’s Method Multiplicative is noted for its suitability in seasonal datasets. Simple Moving Average and Single Exponential Smoothing, although reliable for stable data, show limitations in dynamic conditions.

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Tahabi Hossain
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29 views3 pages

Tracking Signal Analysis

The document evaluates various forecasting models using Tracking Signal to assess their bias and reliability. Double Exponential Smoothing (α = 0.4, γ = 0.4) is identified as the best model due to its minimal bias and effectiveness in capturing trends, while Winter’s Method Multiplicative is noted for its suitability in seasonal datasets. Simple Moving Average and Single Exponential Smoothing, although reliable for stable data, show limitations in dynamic conditions.

Uploaded by

Tahabi Hossain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Evaluation of Top Forecasting Models Using Tracking Signal

Tracking Signal is a critical measure used to evaluate the bias in forecasting models. It helps
determine whether the forecasts consistently overestimate or underestimate the actual
values. In this analysis, we evaluate the top-performing forecasting models—Simple Moving
Average (Period = 5), Single Exponential Smoothing (α = 0.4), Double Exponential
Smoothing (α = 0.4, γ = 0.4), and Winter’s Method Multiplicative (α = 0.2, γ = 0.2, δ = 0.2)—
using their respective Tracking Signals.

1. Simple Moving Average (Period = 5)


The Tracking Signal for Simple Moving Average (Period = 5) remains mostly within the
acceptable range (-4 to +4), indicating that the model is reliable and unbiased. However,
occasional deviations beyond these limits suggest minor inconsistencies that could impact
the accuracy for long-term forecasting.

2. Single Exponential Smoothing (α = 0.4)


The Tracking Signal for Single Exponential Smoothing (α = 0.4) exhibits greater variability,
with notable outliers. This suggests that while the method performs well for stable data, it
may not adequately capture the dynamic patterns present in time series with significant
trends.
3. Double Exponential Smoothing (α = 0.4, γ = 0.4)
Double Exponential Smoothing (α = 0.4, γ = 0.4) demonstrates a consistent Tracking Signal
that mostly stays within the acceptable range. This highlights the model's ability to
effectively capture both the level and trend components, making it a strong choice for
forecasting share prices and other datasets with trends.

4. Winter’s Method Multiplicative (α = 0.2, γ = 0.2, δ = 0.2)


The Tracking Signal for Winter’s Method Multiplicative (α = 0.2, γ = 0.2, δ = 0.2) remains
largely unbiased, with minimal deviations outside the acceptable range. This indicates that
the model is suitable for datasets with both trend and seasonality, providing accurate and
consistent forecasts.
Conclusion
Based on the analysis of Tracking Signals, Double Exponential Smoothing (α = 0.4, γ = 0.4)
emerges as the best forecasting model. Its Tracking Signal demonstrates minimal bias and
remains well within the acceptable range, highlighting its capability to effectively capture
both the level and trend components of the data. Winter’s Method Multiplicative is a close
contender, especially for datasets with pronounced seasonality. While Simple Moving
Average and Single Exponential Smoothing perform well for stable datasets, their Tracking
Signals reveal limitations in handling dynamic trends and seasonality.

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