If , ,......, denote the time series and are the trend values of the variables , then
If , ,......, denote the time series and are the trend values of the variables , then
Solution
If we fit a trend line to time series data using the Least Squares Method, the trend line passes through the data such that the deviations above and below it perfectly balance out.
Here,
represents the actual observed values
represents the trend (fitted) values from the trend line
represents the deviation of the actual value from the trend value (also called a residual)
The Least Squares Method finds the line that minimizes
A fundamental property of this method is that the positive deviations (where actual is above the trend) and the negative deviations (where actual is below the trend) cancel each other out exactly.
Think of it like a see-saw — if the deviations didn't cancel out, we could shift the line up or down to get a better fit, meaning it wasn't the best fit line in the first place.
Therefore,
The sum of deviations of actual values from the trend values is always zero for a least squares trend line.
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