The rate of change is the ratio between the variance and the mean of a series. Following the evolution of the variance rate allows to choose between the model of additive and multiplicative decomposition. The closer the change in the rate of change is to 0, the more judicious it will be to choose an additive decomposition model.
Coefficient of variation = variance / average
For a product that has the following sales:
The coefficient of variance corresponds as follows:
- Year 1: 422/1 087 = 0.39
- Year 2: 502/1 304 = 0.38
Note that the evolution between the two years is (0.38 / 0.39) -1 = -2.5%, we therefore recommend to use an additive model to break down the time series .
The coefficient of variation can be translated into English as "Coefficient of variation".
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