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Practical Time Series Analysis by Dr. PKS Prakash, Dr. Avishek Pal

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Differencing

The basic idea of differencing is taking differences between successive occurrences of the time series Δxt = xt - xt-1 such that Δxt have constant mean and variance and hence can be treated as a stationary series. The ADF test is based on the idea of differencing the original time series and therefore we will explain it after discussing various types of differencing techniques.

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