Assessing the forecastability of a time series
Although there are many statistical measures that we can use to assess the predictability of a time series, we will just look at a few that are easier to understand and practical when dealing with large time series datasets. The associated notebook (02-Forecastability.ipynb) contains the code to follow along.
Coefficient of Variation (CoV)
The Coefficient of Variation (CoV) relies on the intuition that the more variability that you find in a time series, the harder it is to predict it. And how do we measure variability in a random variable? Standard deviation.
In many real-world time series, the variation we see in the time series is dependent on the scale of the time series. Let’s imagine that there are two retail products, A and B. A has a mean monthly sale of 15, while B has 50. If we look at a few real-world examples like this, we will see that if A and B have the same standard deviation, B, which has a higher mean...
