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    Question

    Which of the following is the primary reason for

    ensuring stationarity in time series data before applying ARIMA models?
    A To eliminate autocorrelation in residuals. Correct Answer Incorrect Answer
    B To improve the predictive power of the model. Correct Answer Incorrect Answer
    C To satisfy the mathematical assumptions of ARIMA. Correct Answer Incorrect Answer
    D To decompose the time series into trend, seasonality, and irregular components. Correct Answer Incorrect Answer
    E To ensure that the seasonal component remains constant over time. Correct Answer Incorrect Answer

    Solution

    Explanation: Stationarity in time series data is a critical assumption for applying ARIMA models. ARIMA (AutoRegressive Integrated Moving Average) is designed to work with data that has constant mean, variance, and autocovariance over time. Stationary data ensures the model's stability, enabling accurate predictions and parameter estimation. If the data is not stationary, the ARIMA model's results may be unreliable. Non-stationary data can lead to misleading forecasts, as the underlying patterns are not stable. Techniques like differencing, logarithmic transformations, or the Dickey-Fuller test are employed to achieve stationarity. Option A: While ARIMA addresses autocorrelation, stationarity is needed for foundational assumptions, not just for residual issues. Option B: Stationarity helps improve model accuracy but is not the primary reason for its necessity. Option D: Decomposition is a separate analytical step and not a requirement for ARIMA.       Option E: Seasonal components are  addressed by SARIMA models, not basic ARIMA.

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