27/04/2019 An End-to-End Project on Time Series Analysis and Forecasting with Python

An End-to-End Project on Time Series

Analysis and Forecasting with Python
Susan Li Follow
Jul 8, 2018 · 9 min read

Photo credit: Pexels

Time series analysis comprises methods for analyzing time series data
in order to extract meaningful statistics and other characteristics of the
data. Time series forecasting is the use of a model to predict future
values based on previously observed values.

Time series are widely used for non-stationary data, like economic,
weather, stock price, and retail sales in this post. We will demonstrate
different approaches for forecasting retail sales time series. Let’s get
started!

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The Data
We are using Superstore sales data that can be downloaded from here.

import warnings
import itertools
import numpy as np
import matplotlib.pyplot as plt
warnings.filterwarnings("ignore")
plt.style.use('fivethirtyeight')
import pandas as pd
import statsmodels.api as sm
import matplotlib

matplotlib.rcParams['axes.labelsize'] = 14
matplotlib.rcParams['xtick.labelsize'] = 12
matplotlib.rcParams['ytick.labelsize'] = 12
matplotlib.rcParams['text.color'] = 'k'

There are several categories in the Superstore sales data, we start from
time series analysis and forecasting for furniture sales.

df = pd.read_excel("Superstore.xls")
furniture = df.loc[df['Category'] == 'Furniture']

We have a good 4-year furniture sales data.

furniture['Order Date'].min(), furniture['Order Date'].max()

Timestamp(‘2014–01–06 00:00:00’), Timestamp(‘2017–12–30

00:00:00’)

Data Preprocessing
This step includes removing columns we do not need, check missing
values, aggregate sales by date and so on.

cols = ['Row ID', 'Order ID', 'Ship Date', 'Ship Mode',

'Customer ID', 'Customer Name', 'Segment', 'Country',
'City', 'State', 'Postal Code', 'Region', 'Product ID',
'Category', 'Sub-Category', 'Product Name', 'Quantity',

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'Discount', 'Profit']
furniture.drop(cols, axis=1, inplace=True)
furniture = furniture.sort_values('Order Date')

furniture.isnull().sum()

Figure 1

furniture = furniture.groupby('Order Date')

['Sales'].sum().reset_index()

Indexing with Time Series Data

furniture = furniture.set_index('Order Date')

furniture.index

Figure 2

Our current datetime data can be tricky to work with, therefore, we will
use the averages daily sales value for that month instead, and we are
using the start of each month as the timestamp.

y = furniture['Sales'].resample('MS').mean()

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Have a quick peek 2017 furniture sales data.

y['2017':]

Figure 3

Visualizing Furniture Sales Time

Series Data

y.plot(figsize=(15, 6))
plt.show()

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Figure 4

Some distinguishable patterns appear when we plot the data. The time-
series has seasonality pattern, such as sales are always low at the
beginning of the year and high at the end of the year. There is always
an upward trend within any single year with a couple of low months in
the mid of the year.

We can also visualize our data using a method called time-series

decomposition that allows us to decompose our time series into three
distinct components: trend, seasonality, and noise.

from pylab import rcParams

rcParams['figure.figsize'] = 18, 8

decomposition = sm.tsa.seasonal_decompose(y,
model='additive')
fig = decomposition.plot()
plt.show()

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Figure 5

The plot above clearly shows that the sales of furniture is unstable,
along with its obvious seasonality.

Time series forecasting with ARIMA

We are going to apply one of the most commonly used method for time-
series forecasting, known as ARIMA, which stands for Autoregressive
Integrated Moving Average.

ARIMA models are denoted with the notation ARIMA(p, d, q) . These

three parameters account for seasonality, trend, and noise in data:

p = d = q = range(0, 2)
pdq = list(itertools.product(p, d, q))
seasonal_pdq = [(x[0], x[1], x[2], 12) for x in
list(itertools.product(p, d, q))]

print('Examples of parameter combinations for Seasonal

ARIMA...')
print('SARIMAX: {} x {}'.format(pdq[1], seasonal_pdq[1]))
print('SARIMAX: {} x {}'.format(pdq[1], seasonal_pdq[2]))
print('SARIMAX: {} x {}'.format(pdq[2], seasonal_pdq[3]))
print('SARIMAX: {} x {}'.format(pdq[2], seasonal_pdq[4]))

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Figure 6

This step is parameter Selection for our furniture’s sales ARIMA Time
Series Model. Our goal here is to use a “grid search” to find the optimal
set of parameters that yields the best performance for our model.

for param in pdq:

for param_seasonal in seasonal_pdq:
try:
mod = sm.tsa.statespace.SARIMAX(y,
order=param,

seasonal_order=param_seasonal,

enforce_stationarity=False,

enforce_invertibility=False)

results = mod.fit()

print('ARIMA{}x{}12 - AIC:{}'.format(param, param_seasonal,

results.aic))
except:
continue

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Figure 7

The above output suggests that SARIMAX(1, 1, 1)x(1, 1, 0, 12)

yields the lowest AIC value of 297.78. Therefore we should consider

this to be optimal option.

Fitting the ARIMA model

mod = sm.tsa.statespace.SARIMAX(y,
order=(1, 1, 1),
seasonal_order=(1, 1, 0,
12),
enforce_stationarity=False,
enforce_invertibility=False)

results = mod.fit()

print(results.summary().tables[1])

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Figure 8

We should always run model diagnostics to investigate any unusual

behavior.

results.plot_diagnostics(figsize=(16, 8))
plt.show()

Figure 9

It is not perfect, however, our model diagnostics suggests that the

model residuals are near normally distributed.

Validating forecasts
To help us understand the accuracy of our forecasts, we compare
predicted sales to real sales of the time series, and we set forecasts to

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start at 2017–01–01 to the end of the data.

pred = results.get_prediction(start=pd.to_datetime('2017-01-
01'), dynamic=False)
pred_ci = pred.conf_int()

ax = y['2014':].plot(label='observed')
pred.predicted_mean.plot(ax=ax, label='One-step ahead
Forecast', alpha=.7, figsize=(14, 7))

ax.fill_between(pred_ci.index,
pred_ci.iloc[:, 0],
pred_ci.iloc[:, 1], color='k', alpha=.2)

ax.set_xlabel('Date')
ax.set_ylabel('Furniture Sales')
plt.legend()

plt.show()

Figure 10

The line plot is showing the observed values compared to the rolling
forecast predictions. Overall, our forecasts align with the true values
very well, showing an upward trend starts from the beginning of the
year and captured the seasonality toward the end of the year.

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y_forecasted = pred.predicted_mean
y_truth = y['2017-01-01':]

mse = ((y_forecasted - y_truth) ** 2).mean()

print('The Mean Squared Error of our forecasts is
{}'.format(round(mse, 2)))

The Mean Squared Error of our forecasts is 22993.58

print('The Root Mean Squared Error of our forecasts is

{}'.format(round(np.sqrt(mse), 2)))

The Root Mean Squared Error of our forecasts is 151.64

In statistics, the mean squared error (MSE) of an estimator measures

the average of the squares of the errors — that is, the average squared
difference between the estimated values and what is estimated. The
MSE is a measure of the quality of an estimator — it is always non-
negative, and the smaller the MSE, the closer we are to finding the line
of best fit.

Root Mean Square Error (RMSE) tells us that our model was able to
forecast the average daily furniture sales in the test set within 151.64 of
the real sales. Our furniture daily sales range from around 400 to over
1200. In my opinion, this is a pretty good model so far.

Producing and visualizing forecasts

pred_uc = results.get_forecast(steps=100)
pred_ci = pred_uc.conf_int()

ax = y.plot(label='observed', figsize=(14, 7))

pred_uc.predicted_mean.plot(ax=ax, label='Forecast')
ax.fill_between(pred_ci.index,
pred_ci.iloc[:, 0],
pred_ci.iloc[:, 1], color='k', alpha=.25)
ax.set_xlabel('Date')
ax.set_ylabel('Furniture Sales')

plt.legend()
plt.show()

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Figure 11

Our model clearly captured furniture sales seasonality. As we forecast

further out into the future, it is natural for us to become less confident
in our values. This is reflected by the confidence intervals generated by
our model, which grow larger as we move further out into the future.

The above time series analysis for furniture makes me curious about
other categories, and how do they compare with each other over time.
Therefore, we are going to compare time series of furniture and office
supplier.

Time Series of Furniture vs. Office Supplies

According to our data, there were way more number of sales from
Office Supplies than from Furniture over the years.

furniture = df.loc[df['Category'] == 'Furniture']

office = df.loc[df['Category'] == 'Office Supplies']
furniture.shape, office.shape

((2121, 21), (6026, 21))

Data Exploration

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We are going to compare two categories’ sales in the same time period.
This means combine two data frames into one and plot these two
categories’ time series into one plot.

cols = ['Row ID', 'Order ID', 'Ship Date', 'Ship Mode',

'Customer ID', 'Customer Name', 'Segment', 'Country',
'City', 'State', 'Postal Code', 'Region', 'Product ID',
'Category', 'Sub-Category', 'Product Name', 'Quantity',
'Discount', 'Profit']
furniture.drop(cols, axis=1, inplace=True)
office.drop(cols, axis=1, inplace=True)

furniture = furniture.sort_values('Order Date')

office = office.sort_values('Order Date')

furniture = furniture.groupby('Order Date')

['Sales'].sum().reset_index()
office = office.groupby('Order Date')
['Sales'].sum().reset_index()

furniture = furniture.set_index('Order Date')

office = office.set_index('Order Date')

y_furniture = furniture['Sales'].resample('MS').mean()
y_office = office['Sales'].resample('MS').mean()

furniture = pd.DataFrame({'Order Date':y_furniture.index,

'Sales':y_furniture.values})
office = pd.DataFrame({'Order Date': y_office.index,
'Sales': y_office.values})

store = furniture.merge(office, how='inner', on='Order

Date')
store.rename(columns={'Sales_x': 'furniture_sales',
'Sales_y': 'office_sales'}, inplace=True)
store.head()

Figure 12

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plt.figure(figsize=(20, 8))
plt.plot(store['Order Date'], store['furniture_sales'], 'b-
', label = 'furniture')
plt.plot(store['Order Date'], store['office_sales'], 'r-',
label = 'office supplies')
plt.xlabel('Date'); plt.ylabel('Sales'); plt.title('Sales of
Furniture and Office Supplies')
plt.legend();

Figure 13

We observe that sales of furniture and office supplies shared a similar

seasonal pattern. Early of the year is the off season for both of the two
categories. It seems summer time is quiet for office supplies too. in
addition, average daily sales for furniture are higher than those of
office supplies in most of the months. It is understandable, as the value
of furniture should be much higher than those of office supplies.
Occasionally, office supplies passed furniture on average daily sales.
Let’s find out when was the first time office supplies’ sales surpassed
those of furniture’s.

first_date =
store.ix[np.min(list(np.where(store['office_sales'] >
store['furniture_sales'])[0])), 'Order Date']

print("Office supplies first time produced higher sales than

furniture is {}.".format(first_date.date()))

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O ce supplies rst time produced higher sales than furniture is

2014–07–01.

It was July 2014!

Time Series Modeling with Prophet

Released by Facebook in 2017, forecasting tool Prophet is designed for
analyzing time-series that display patterns on different time scales such
as yearly, weekly and daily. It also has advanced capabilities for
modeling the effects of holidays on a time-series and implementing
custom changepoints. Therefore, we are using Prophet to get a model
up and running.

from fbprophet import Prophet

furniture = furniture.rename(columns={'Order Date': 'ds',

'Sales': 'y'})
furniture_model = Prophet(interval_width=0.95)
furniture_model.fit(furniture)

office = office.rename(columns={'Order Date': 'ds', 'Sales':

'y'})
office_model = Prophet(interval_width=0.95)
office_model.fit(office)

furniture_forecast =
furniture_model.make_future_dataframe(periods=36, freq='MS')
furniture_forecast =
furniture_model.predict(furniture_forecast)

office_forecast =
office_model.make_future_dataframe(periods=36, freq='MS')
office_forecast = office_model.predict(office_forecast)

plt.figure(figsize=(18, 6))
furniture_model.plot(furniture_forecast, xlabel = 'Date',
ylabel = 'Sales')
plt.title('Furniture Sales');

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Figure 14

plt.figure(figsize=(18, 6))
office_model.plot(office_forecast, xlabel = 'Date', ylabel =
'Sales')
plt.title('Office Supplies Sales');

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Figure 15

Compare Forecasts
We already have the forecasts for three years for these two categories
into the future. We will now join them together to compare their future
forecasts.

furniture_names = ['furniture_%s' % column for column in

furniture_forecast.columns]
office_names = ['office_%s' % column for column in
office_forecast.columns]

merge_furniture_forecast = furniture_forecast.copy()
merge_office_forecast = office_forecast.copy()

merge_furniture_forecast.columns = furniture_names
merge_office_forecast.columns = office_names

forecast = pd.merge(merge_furniture_forecast,
merge_office_forecast, how = 'inner', left_on =
'furniture_ds', right_on = 'office_ds')

forecast = forecast.rename(columns={'furniture_ds':
'Date'}).drop('office_ds', axis=1)
forecast.head()

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Figure 16

Trend and Forecast Visualization

plt.figure(figsize=(10, 7))
plt.plot(forecast['Date'], forecast['furniture_trend'], 'b-
')
plt.plot(forecast['Date'], forecast['office_trend'], 'r-')
plt.legend(); plt.xlabel('Date'); plt.ylabel('Sales')
plt.title('Furniture vs. Office Supplies Sales Trend');

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Figure 17

plt.figure(figsize=(10, 7))
plt.plot(forecast['Date'], forecast['furniture_yhat'], 'b-')
plt.plot(forecast['Date'], forecast['office_yhat'], 'r-')
plt.legend(); plt.xlabel('Date'); plt.ylabel('Sales')
plt.title('Furniture vs. Office Supplies Estimate');

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Figure 18

Trends and Patterns

Now, we can use the Prophet Models to inspect different trends of these
two categories in the data.

furniture_model.plot_components(furniture_forecast);

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Figure 19

office_model.plot_components(office_forecast);

Figure 20

Good to see that the sales for both furniture and office supplies have
been linearly increasing over time and will be keep growing, although
office supplies’ growth seems slightly stronger.

The worst month for furniture is April, the worst month for office
supplies is February. The best month for furniture is December, and the
best month for office supplies is October.

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There are many time-series analysis we can explore from now on, such
as forecast with uncertainty bounds, change point and anomaly
detection, forecast time-series with external data source. We have only
just started.

Source code can be found on Github. I look forward to hearing

feedback or questions.

References:

A Guide to Time Series Forecasting with ARIMA in Python 3

A Guide to Time Series Forecasting with Prophet in Python 3

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