Autocorrelation can take on two types: positive or negative. In positive autocorrelation, consecutive errors usually have the same sign: positive residuals are almost always followed by positive residuals, while negative residuals are almost always followed by negative residuals. In negative autocorrelation, consecutive errors typically have opposite signs: positive residuals are almost always followed by negative residuals and vice versa.<br><br>In addition, there are different orders of autocorrelation. The simplest, most common kind of autocorrelation, first-order autocorrelation, occurs when the consecutive errors are correlated. Second-order autocorrelation occurs when error terms two periods apart are correlated, and so forth. Here, we will concentrate solely on first-order autocorrelation.<br><br>You will see a visual depiction of positive autocorrelation later in this post.
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