CODEWITHSUNDEEP
rregressionforecastingconfidence-interval
Saif
Saif

Reputation: 1

calculating aggregate confidence intervals for forecasts

I'm using ARIMA models to estimate sales forecast for a company. The company's sales channel is broken down into 4 sales channels and I'm running 4 different models to estimate the sales for each channel. Eventually, I'm going to aggregate the sales of these channels to find the total forecasted sales for the whole company. My questions is, how should i go about finding the confidence interval for the overall forecast? Adding up the confidence intervals of each channel is not correct since that will give me a very large interval.

I'd really appreciate if anyone can give me some idea on how to approach this sort of issue. Thanks in advance!

Upvotes: 0

Views: 2995

Answers (1)

Rob Hyndman
Rob Hyndman

Reputation: 31800

The confidence interval is based on the variance. For a 95% interval, it is the forecast plus/minus 1.96*sqrt(variance). So you need to estimate the variance of the sum. It is not equal to the sum of the variances unless the four channels are uncorrelated. You will need to compute the correlations between the four channels, and then use the equation for the variance of a sum (check any intro stats book).

Upvotes: 4

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