Forecasting: What It Is, How Its Used in Business and Investing
Summary
Forecasting is a technique that uses historical data as inputs to make informed estimates that are predictive in determining the direction of future trends. Examples of qualitative forecasting models include interviews, on-site visits, market research, polls, and surveys that may apply the Delphi method (which relies on aggregated expert opinions). These statistical relationships are then extrapolated into the future to generate forecasts along with confidence intervals to understand the likelihood of the actual outcomes falling within that scope. Another method, known as rescaled range analysis, can be used to detect and evaluate the amount of persistence, randomness, or mean reversion in time series data. But, since we cannot definitively know the future, and since forecasts often rely on historical data, their accuracy will always come with some room for error, and in some cases may end up being way off.