13.4 Forecast combinations
An easy way to improve forecast accuracy is to use several different methods on the same time series, and to average the resulting forecasts. Over 50 years ago, John Bates and Clive Granger wrote a famous paper (Bates & Granger, 1969), showing that combining forecasts often leads to better forecast accuracy. Twenty years later, Clemen (1989) wrote
The results have been virtually unanimous: combining multiple forecasts leads to increased forecast accuracy. In many cases one can make dramatic performance improvements by simply averaging the forecasts.
While there has been considerable research on using weighted averages, or some other more complicated combination approach, using a simple average has proven hard to beat.
Here is an example using monthly revenue from take-away food in Australia, from April 1982 to December 2018. We use forecasts from the following models: ETS, STL-ETS, and ARIMA; and we compare the results using the last 5 years (60 months) of observations.
<- aus_retail %>% auscafe filter(stringr::str_detect(Industry, "Takeaway")) %>% summarise(Turnover = sum(Turnover)) <- auscafe %>% train filter(year(Month) <= 2013) <- decomposition_model( STLF STL(log(Turnover) ~ season(window = Inf)), ETS(season_adjust ~ season("N")) )<- train %>% cafe_models model( ets = ETS(Turnover), stlf = STLF, arima = ARIMA(log(Turnover)) %>% ) mutate(combination = (ets + stlf + arima) / 3) <- cafe_models %>% cafe_fc forecast(h = "5 years")
Notice that we form a combination in the
mutate() function by simply taking a linear function of the estimated models. This very simple syntax will automatically handle the forecast distribution appropriately by taking account of the correlation between the forecast errors of the models that are included. However, to keep the next plot simple, we will omit the prediction intervals.
%>% cafe_fc autoplot(auscafe %>% filter(year(Month) > 2008), level = NULL) + labs(y = "$ billion", title = "Australian monthly expenditure on eating out")
%>% cafe_fc accuracy(auscafe) %>% arrange(RMSE) #> # A tibble: 4 x 10 #> .model .type ME RMSE MAE MPE MAPE MASE RMSSE ACF1 #> <chr> <chr> <dbl> <dbl> <dbl> <dbl> <dbl> <dbl> <dbl> <dbl> #> 1 combination Test 8.09 41.0 31.8 0.401 2.19 0.776 0.790 0.747 #> 2 arima Test -25.4 46.2 38.9 -1.77 2.65 0.949 0.890 0.786 #> 3 stlf Test -36.9 64.1 51.7 -2.55 3.54 1.26 1.23 0.775 #> 4 ets Test 86.5 122. 101. 5.51 6.66 2.46 2.35 0.880
ARIMA does particularly well with this series, while the combination approach does even better (based on most measures including RMSE and MAE). For other data, ARIMA may be quite poor, while the combination approach is usually not far off, or better than, the best component method.
Forecast combination distributions
cafe_fc object contains forecast distributions, from which any prediction interval can usually be computed. Let’s look at the intervals for the first period.
%>% filter(Month == min(Month)) cafe_fc #> # A fable: 4 x 4 [1M] #> # Key: .model  #> .model Month Turnover .mean #> <chr> <mth> <dist> <dbl> #> 1 ets 2014 Jan N(1289, 1118) 1289. #> 2 stlf 2014 Jan t(N(7.2, 0.00063)) 1326. #> 3 arima 2014 Jan t(N(7.2, 0.00061)) 1283. #> 4 combination 2014 Jan 1299 1299.
The first three are a mixture of normal and transformed normal distributions. The package does not yet combine such diverse distributions, so the
combination output is simply the mean instead.
However, if we work with simulated sample paths, it is possible to create forecast distributions for the combination forecast as well.
<- cafe_models %>% cafe_futures # Generate 1000 future sample paths generate(h = "5 years", times = 1000) %>% # Compute forecast distributions from future sample paths as_tibble() %>% group_by(Month, .model) %>% summarise(dist = distributional::dist_sample(list(.sim))) %>% ungroup() %>% # Create fable object as_fable(index = Month, key = .model, distribution = dist, response = "Turnover") # Forecast distributions for h=1 %>% filter(Month == min(Month)) cafe_futures #> # A fable: 4 x 3 [1M] #> # Key: .model  #> Month .model dist #> <mth> <chr> <dist> #> 1 2014 Jan arima sample #> 2 2014 Jan combination sample #> 3 2014 Jan ets sample #> 4 2014 Jan stlf sample
Now all four models and the combination are stored as empirical distributions, and we can plot prediction intervals for the combination forecast.
%>% cafe_futures filter(.model == "combination") %>% autoplot(auscafe %>% filter(year(Month) > 2008)) + labs(y = "$ billion", title = "Australian monthly expenditure on eating out")
To check the accuracy of the 95% prediction intervals, we can use a Winkler score (defined in Section 5.9.
%>% accuracy(auscafe, measures = interval_accuracy_measures, level = 95) cafe_futures #> # A tibble: 4 x 3 #> .model .type winkler #> <chr> <chr> <dbl> #> 1 arima Test 766. #> 2 combination Test 420. #> 3 ets Test 731. #> 4 stlf Test 596.
Lower is better, so the
combination forecast is again better than any of the component models.