Often today's companies rely on accurate business analytics to reduce the cost of operations and maximize profits. One of the drivers behind this is the availability of vast amounts of historical and current data, and trend analysis - the ability to make predictions (forecasts) using statistical and business tools.
Whether we seek to predict the movement of stock and prices, or whether tomorrow's weather will positively or negatively affect our business, trend analysis paired with rich, accurate data is an indispensable tool that we must utilize.
In this article, we will expand on what trend analysis is all about. We will also provide you with some examples of trend analysis and finally, show you how you can perform trend analysis and the tools for it.
a method of analysis that utilizes various strategies and tools to understand and predict future patterns from historical or past data.
Trend analysis is commonly used in the financial and investment sector usually to predict future stock price movements. However, since its central theme is the prediction of future events or behavior from historical data, trend analysis has been applied to various fields such as forecasting the economy, weather prediction and so on.
In the investment world, trend analysis is a form of technical analysis, with the opposite being fundamental analysis. Both types can be complementary to each other with data from traditional sources or more recently, alternative data sources.
Who Can Perform Trend Analysis?
Who can perform trend analysis? Simply, anyone including you nyone, from students, data or business analysts, to professionals and experts. Even those without formal education can perform some form of basic trend analysis ou probably did it casually many times. How so? you may ask. I will cite some examples in the section below.
What Do You Need?
To perform trend analysis, you require merely two components at its core - a set of historical data, and a specialized tool to chart or understand it. Of course most cases, especially for industries and businesses, there is a myriad of datasets and statistical or business tools available to perform advanced trend analysis. More will be shared in the upcoming section.
How Is Trend Analysis Used?
Trend analysis allows individuals and businesses to observe patterns that can be turned into decisions. Let us look at some of these areas.
1. Stock prices
Trend analysis is most widely used in finance for stock analysis. An investor can observe historical data, such as price movements and trade volume, and use them to forecast the long-term direction of stock prices or market sentiments.
Here, the market trend - the direction of the market during a specified period - might be upward (bullish), downward (bearish), reverse (bull-to-bear or bear-to-bull), or horizontal (stagnant). Through trend analysis, investors will usually move with the trends, and not against them, to make a profit or generate alpha. This is based on the idea that past events are likely to repeat themselves.
2. Company performance
Trend analysis can be used to evaluate a company's performance. For example, by tracking a company's turnover or the number of employees over a period, you can identify if the company is growing or not. We can predict that a company that is hiring aggressively is expecting growth. Conversely, we can assume that cutting down employees or roles is synonymous with declining performance.
3. Macroeconomy
Apart from stocks, trend analysis can be used to track the growth of an economy over time through various approaches. These approaches include observation of financial assets, size of an economy, no. of job postings, and no. of new firms or investments. For example, the No. of job postings can be used to predict economic outlook based on their correlation in the past. More new firms might suggest the economy is heading bullish too.
4. Weather predictions
In weather forecasting, trend analysis is used to predict future weather patterns based on past patterns. Trend analysis may appear in the form of choices you make (food, clothing, activities, and so on) based on predicted variations in future weather. For example, historically, April-June has been a rainy period, thus during those months, you might be wary to bring an umbrella, or planning indoor activities. You have done trend analysis in its most basic form.
How To Do A Trend Analysis
Now that we’re well covered what trend analysis is, this section will delve into how you can perform trend analysis.
Step 1 - Decide on the objectives and results that you intend to obtain and the kind of trend analysis you need to make. For example, you may decide to look at the performance of an industry using strategies such as moving averages, trendlines, and chart patterns.
Step 2 - Next, decide on the kinds of data you want to look at, the industry, the assets & the data source. For example, if you are looking at data on companies and networks of professionals, profile datasets is a great source. If you want more advanced data points such as no. of employees in a company, and no. of job postings over a period, Enrich Layer offers excellent tools and APIs for that purpose.
Step 3 - Decide on the time horizon of analysis: long, intermediate, short term - depending on the nature of the trend analysis you are doing. For example, you may want to look at current market trends or those of the last 6 months or you may decide to use longer trends like the last 5 - 10 years.
Step 4 - Finally, depending on the technical skills of your team and your budget, decide on tools to chart the data points. The tool could be as simple as Excel or Google Sheets or could be a more advanced visualization tool like Power BI or Tableau.
Step 5 - After making the decisions above, you can perform trend analysis using various strategies such as moving averages, trendlines and charts, and so on.
Conclusion
Trend analysis provides an immense benefit to investors and businesses. It is useful in the areas of stock price prediction, company performance measurements, decision-making based on the state of the economy, weather forecasts, and so on. A large part of trend analysis rests on the availability of accurate and updated datasets, traditional or alternative.
If you need an alternative data source for trend analysis on companies, employees, and investments, LinkDB profile datasets by Enrich Layer is a great source with 401M profiles of persons and companies. Or gather even high levels of structured data via our various APIs such as [Employee Listing API]( Social Network/list-employee) which gives a list of past and present employees of any company.
Trend analysis allows individuals and businesses to observe patterns that can be turned into decisions. Let us look at some of these areas.