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Derivatives and Differences of Time Series

Imagine a time series where a dip occurred but then recovered:



If you were to take the derivative or difference (MOM or YOY) if it you'd end up with something like this:



This curve/data appears to be declining and may cause alarm ...but is that what it is saying? No. It is saying that the underlying time series has recovered.

I'll add more to this post when I get time (it was hastily prepared to comment on this article: seekingalpha.com/article/193626-is-china...). In the meantime this article fleshes out some further thoughts on caution when interpreting difference time series.

seekingalpha.com/article/190348-debunkin...


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