Seasonality โ Cyclicity
Be it time series analysis or Marketing Mix Models (MMM), the distinction between seasonality and cyclicity is important.
Many confuse seasonality with cyclical time series.
Here is a quick distinction.
Seasonal:
A seasonal pattern is a fluctuation which occurs at regular time intervals. These time intervals are predictable. Seasonality does not always refer to changing seasons. It could be anything which happens at predictable and regular intervals. The frequency of these events is fixed and is associated with calendar events. E.g., electricity demand pattern or sales trend showing surges around holiday season.
Cyclical:
A cyclical pattern is a time series which does not occur at regular intervals. These rises and falls are not predictable and are not of a fixed frequency. These fluctuations are usually due to some event or economic event or business cycles and the magnitude of cycles tend to be more variable than the magnitudes of seasonal patterns. E.g., economic prosperity and recession trends.
Notice how the pattern of peaks and troughs is repeated at regular intervals in Fig 1 and depicts a seasonal pattern whereas in Fig 2, the peaks and troughs are not at regular time intervals.
Understanding the difference between seasonality and cyclicity could really help you specify your MMM models correctly.
