What is Autocorrelation

Autocorrelation is a statistical measure that calculates the linear relationship between a series of observations and a lagged version of the same series. It is a key concept in time series analysis and helps determine the degree of similarity between a series and its previous values.

An intuitive example of autocorrelation can be seen in stock prices. If the stock price was high today, it is likely to be high tomorrow as well. This positive correlation between current and past values of a time series is an example of positive autocorrelation. On the other hand, if stock prices tend to decrease after a period of increase, there is negative autocorrelation.

Autocorrelation is used in several areas, including finance, engineering, and economics, to analyze and make predictions about time series data. It provides information on the persistence of a time series, which is useful in making decisions about investments, financial planning, and policy making.

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