Link Relatives Method
Among all the methods of measuring seasonal variation, link relatives method is the most difficult one. When this method is adopted the following steps are taken to calculate the seasonal variation indices :
(i) Calculate the link relatives of the seasonal figures. Link relatives are calculated by dividing the figure of each season* by the figure of immediately preceding season and multiplying it by 100.
These percentages are called link relatives since they link each month (or quarter or other time period) to the preceding one.
(ii) Calculating the average of the link relatives for each season. While calculating average we might take arithmetic average but median is probably better. The arithmetic average would give undue weight to extreme cases which were not primarily due to seasonal influences.
(iii) Convert these averages into chain relatives on the base of the first season.
(iv) Calculate the chain relatives of the first season on the basis of the last season. There will be some difference between the chain relative of the first season and the chain relative calculated by the previous method. This difference will be due to long-term changes. It is therefore necessary to correct these chain relatives.
- These link relatives serve the purpose of linking each month, quarter, or other time period to the preceding one.
- By establishing this connection between seasons, the link relatives help in understanding the variation between different seasons and identifying any patterns or trends.
- This calculation is important in measuring seasonal variation as it provides a relative measure of change from one season to another.
- The link relatives also serve as the basis for calculating the average of the link relatives for each season, which helps in determining the overall seasonal variation.
- Therefore, the purpose of calculating link relatives is to establish a connection between each season and the preceding one, enabling the analysis of seasonal changes and patterns.
(v) For correction, the chain relative of the first season calculated by first method is deducted from the chain relative (of the first season) calculated by the second method. The difference is divided by the number of seasons. The resulting figure multiplied by 1,2,3 (and so on) is deducted respectively from the chain relatives of the 2nd, 3rd, 4th (and so on) seasons. These are correct chain relatives.
(vi) Express the corrected chain relatives as percentage of their averages. These provide the required seasonal indices by the method of link relatives. The following example will illustrate the process.
The correction factor is calculated as follows :
Chain relative of the first quarter (on the basis of first quarter) = 100
Chain relative of the first quarter (on the basis of first quarter) =
Difference between these chain relatives = 106.7 – 100 = 6.7
Difference per quarter =
Adjusted chain relatives are obtained by subtracting 1 × 1.675, 2 × 1.675, 3 × 1.675 from the chain relatives of 2nd , 3rd and 4th quarters, respectively.
|1. What is the Link Relatives Method in Business Mathematics and Statistics?|
|2. How is the Link Relatives Method useful in Business Mathematics and Statistics?|
|3. What are the steps involved in using the Link Relatives Method?|
|4. Can the Link Relatives Method be used for more than two variables?|
|5. What are some common applications of the Link Relatives Method in Business Mathematics and Statistics?|