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    Question

    In time series forecasting, which method combines the

    concepts of autoregression and moving averages with differencing to make non-stationary data stationary?
    A Moving Average (MA) Correct Answer Incorrect Answer
    B ARIMA (AutoRegressive Integrated Moving Average) Correct Answer Incorrect Answer
    C Exponential Smoothing Correct Answer Incorrect Answer
    D Simple Exponential Smoothing Correct Answer Incorrect Answer
    E Holt-Winters Method Correct Answer Incorrect Answer

    Solution

    ARIMA is a powerful forecasting method for time series data, combining autoregressive (AR) and moving average (MA) components, with differencing (I) to transform non-stationary data into stationary. The autoregressive part utilizes dependencies between current and previous observations, while the moving average part considers the relationship between observations and the residuals (errors) from past observations. Differencing is key in ARIMA, as it stabilizes data by removing trends and making it suitable for effective modeling. ARIMA is particularly useful for datasets with complex patterns, offering accurate and robust predictions over time. The other options are incorrect because: • Option 1 (Moving Average) uses past data to smooth fluctuations but lacks AR and differencing capabilities. • Option 3 (Exponential Smoothing) weights recent observations but does not use differencing or autoregression. • Option 4 (Simple Exponential Smoothing) is best for series without trends or seasonality. • Option 5 (Holt-Winters) includes seasonal adjustments but lacks ARIMA’s differencing approach.

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