ExpertMedium2 marksMultiple Choice
ACCA · Question 08 · Data analysis and statistical techniques
Section A
A tech company analyzes its daily server load using a 7-day moving average.
What is the main statistical reason for applying a moving average to this time series data?
Section A
A tech company analyzes its daily server load using a 7-day moving average.
What is the main statistical reason for applying a moving average to this time series data?
Answer options:
A.
To smooth out short-term random fluctuations and highlight the underlying trend.
B.
To calculate the exact seasonal variation index for each day.
C.
To ensure that historical data perfectly matches future forecasts.
D.
To convert qualitative server data into quantitative financial data.
How to approach this question
Think about what happens to a graph when you plot averages instead of raw daily data—it becomes less jagged.
Full Answer
A.To smooth out short-term random fluctuations and highlight the underlying trend.✓ Correct
A moving average is a technique used to analyze time series data. By calculating averages of different subsets of the full data set, it smooths out short-term fluctuations (noise) and highlights longer-term trends or cycles.
Common mistakes
Believing moving averages are used to find the seasonal variation directly, rather than the trend.
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