What is Meant by Seasonality?
Seasonality is a nature of a time series in which the data experiences have frequent and predictable changes recurring every calendar year. Every day-to-day fluctuation or pattern that would recur or replicate considering one complete year is said to be seasonal.
Seasonality refers to predictable changes in business or economy based on the seasons, including calendar or commercial seasons, that occur over one year. Seasonality helps in analysing stocks and economic trends.
Further, companies may use seasonality to assist them in determining individual business decisions, such as stocking and peopling. One instance of a seasonality measure is a case of retailers. There is usually higher spending during the fourth quarter of the calendar year across the globe. In India, the festive season sees increased spending.
Understanding Seasonality
Seasonality refers to seasonal variations that occur regularly in specific business areas and periods based on a particular season. A season may apply to a calendar season, such as summer or winter, or a commercial season, such as the holiday season.
Companies that recognise their businesses' seasonality can forecast and schedule inventories, hiring, and other decisions. It is done to align with the anticipated seasonality of the related activities, thus minimising costs and increasing revenues.
While evaluating stocks from a fundamental point of view, it is essential to consider the effects of seasonality because it can have a significant impact on the earnings and assets of an investor. A business that experiences higher sales in certain seasons may seem to make substantial gains in peak seasons and significant losses in off-peak seasons.
If this is not taken into account, an investor may choose to buy or sell securities based on the operation at hand. In turn, the seasonal change subsequently occurring as part of the seasonal business cycle of the firm is not considered.
Examples of Seasonality
There are many different instances where you can observe seasonality as it relates to the natural transition throughout the year. When you live in a climate with cold winters and warm summers, for example, the heating costs are likely to rise in winter and fall in summer. The seasonality of your heating costs is predicted to recur predictably around the same period each year.
Another example of seasonality, popular in India, is the festive season sales. During Diwali or Dusshera, there are offers and increased tendency of consumers to buy electronics, electricals, and apparels. Also, during Akshaya Tritiya, people buy gold.
