Is this statement correct for MA(1)?

AI & Machine learning
1

Course Name: Financial Time Series Analysis for Trading, Section No: 15, Unit No: 6, Unit type: Notebook

Hello, in this notebook for MA(1) model it says the residuals are random, however the residuals looks like they are in some kind of trend.

https://i.imgur.com/ol7K6ds.png

Is the statement from the screenshot correct? Could you explain a little more why yes/no is this correct? For me, this residuals doesn't look like random.

2

Also I see this:



Imgur: The magic of the Internet



However the residuals are not positive but negative and the model didn't do lower predictions but higher predictions.

3

Hi Daniel,



Thank you so much for pointing this out.



You are right, the residuals were showing a trend. This was because the difference parameter (d) was kept as 0. However, time series data is not stationary and we have to use difference parameter of 1. 

Since we are explaining concepts one by one, the part of "difference (d)" parameter will be explained in further sections, but for the time being, we will use d as 1 in the model.



The notebook has been updated and now there is no trend in the residuals. 

Hope this helps.



Thanks.