Question
What is the primary advantage of using the ARIMA
(AutoRegressive Integrated Moving Average) model for forecasting time series data?Solution
The ARIMA model is widely used for time series forecasting because it combines two key components: autoregressive (AR), which uses past data points to model future values, and moving average (MA), which smooths out short-term fluctuations in the data. Additionally, integration (I) is used to make a non-stationary time series stationary by differencing the data. This allows ARIMA to be applied to a wide range of time series data, even if they exhibit complex patterns, provided the data can be made stationary. Option A is incorrect because ARIMA requires the data to be stationary (or at least made stationary through differencing). Option B is incorrect because ARIMA can handle data with both long-term trends and periodic fluctuations. Option D is incorrect because ARIMA is not the best model for time series with seasonal components—SARIMA (Seasonal ARIMA) is more appropriate for that. Option E is incorrect because ARIMA can handle irregular components as long as the data is stationary or can be made stationary.
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