# Quandl and Forecasting

A Reproducible Finance with R Post by Jonathan Regenstein

Welcome to another installment of Reproducible Finance with R. Today we are going to shift focus in recognition of the fact that there’s more to finance than stock prices, and there’s more to data download than quantmod/getSymbols. In this post, we will explore oil prices using data from Quandl, a repository for both free and paid data sources. We will also get into the forecasting game a bit and think about how best to use dygraphs when visualizing predicted time series as an extension of historical data. We are not going to do anything too complex, but we will expand our toolkit by getting familiar with Quandl, commodity prices, the forecast package, and highcharter. Our ultimate goal is to build a tool where an end user can explore and forecast commodities prices via a Shiny app. The final app can be viewed here.

Before we dive in, a few thoughts to frame this post.

• We are using oil data from Quandl, but the original data is from FRED. There’s nothing wrong with grabbing the data directly from FRED, of course, and I browse FRED frequently to check out economic data, but I tend to download the data into my RStudio environment using Quandl. I wanted to introduce Quandl today because it’s a nice resource and it’s gaining in popularity. If you work in the financial industry, you might start to encounter it in your work.

• This post marks our first foray into the world of predictive modeling, albeit in a very simple way. But the complexity and accuracy of the forecasting methodology we use here is almost irrelevant since I expect that most R coders, whether in industry or otherwise, will have their own proprietary models. Rather, what I want to accomplish here is a framework where models can be inserted, visualized, and scrutinized in the future. I harp on reproducible workflows a lot, and that’s not going to change today because one goal of this Notebook is to house a forecast that can be reproduced in the future (at which point, we will know if the forecast was accurate or not), and then tweaked/criticized/updated/heralded.

Let’s get to the data download! In the chunk below, as we import WTI oil prices, notice that Quandl makes it easy to choose types of objects (raw/dataframe, xts, or zoo), periods (daily, weekly, or monthly) and start/end dates.

library(Quandl)
library(tidyverse)
library(tidyquant)
library(timetk)
library(forecast)
library(highcharter)

# You might want to supply an API key. It's free to sign up.

oil_daily <- Quandl("FRED/DCOILWTICO",
type = "raw",
collapse = "daily",
start_date = "2008-01-01",
end_date = "2018-01-01")

# Now weekly and let's use xts as the type.
oil_weekly <- Quandl("FRED/DCOILWTICO",
type = "xts",
collapse = "weekly",
start_date = "2008-01-01",
end_date = "2018-01-01")

# And monthly using xts as the type.
oil_monthly <- Quandl("FRED/DCOILWTICO",
type = "xts",
collapse = "monthly",
start_date = "2008-01-01",
end_date = "2018-01-01")

# Have a quick look at our three  objects.
head(oil_daily)
##         Date Value
## 1 2017-12-29 60.46
## 2 2017-12-28 59.84
## 3 2017-12-27 59.67
## 4 2017-12-26 59.55
## 5 2017-12-22 58.25
## 6 2017-12-21 58.34
head(oil_weekly)
##             [,1]
## 2008-01-06 97.90
## 2008-01-13 92.74
## 2008-01-20 90.55
## 2008-01-27 90.37
## 2008-02-03 89.03
## 2008-02-10 91.77
head(oil_monthly)
##            [,1]
## Jan 2008  91.67
## Feb 2008 101.78
## Mar 2008 101.54
## Apr 2008 113.70
## May 2008 127.35
## Jun 2008 139.96

Note that we specified the start date as January 1, of 2008 and end date of January 1, 2018 so we will be working with 10 years of data.

Each of the oil data objects we created would work well for the rest of this project, but let’s stick with the monthly data. I don’t love the formate of the column so let’s use the seq() function and mdy() from the lubridate package to put the date into a nicer format.

index(oil_monthly) <- seq(mdy('01/01/2008'), mdy(last(index(oil_monthly))), by = 'months')

head(index(oil_monthly))
## [1] "2008-01-01" "2008-02-01" "2008-03-01" "2008-04-01" "2008-05-01"
## [6] "2008-06-01"

Now we have a cleaner date format and our price data object is in good shape. Let’s fire up highcharter and visualize our price history. Since we imported an xts object directly from Quandl, we can plug it straight into the hchart() function.

hchart(oil_monthly)

Or we can use the highchart(type = "stock") code flow to produce the same chart. Let’s also add a $ label to the y-axis with hc_yAxis. highchart(type = "stock") %>% hc_add_series(oil_monthly, color = "cornflowerblue") %>% hc_yAxis(title = list(text = "monthly price"), labels = list(format = "${value}"),
opposite = FALSE) %>%
hc_add_theme(hc_theme_flat())

Nothing too shocking here. We see a peak in mid-2008, followed by a precipitous decline through the beginning of 2009.

Now we’ll make things a bit more interesting and try to extract some meaning from that data. First, let’s fit an arima model to our time series using the auto.arima() function from the forecast package. This is for illustrative purposes only and probably isn’t the best model for oil prices.

auto.arima(oil_monthly)
## Series: oil_monthly
## ARIMA(1,1,0)
##
## Coefficients:
##          ar1
##       0.3218
## s.e.  0.0871
##
## sigma^2 estimated as 47.84:  log likelihood=-398.55
## AIC=801.1   AICc=801.2   BIC=806.65

Next we can use the forecast() function to predict what oil prices will look like over the next six months, based on the arima model we just fit.

auto.arima(oil_monthly) %>%
forecast(h = 6)
##     Point Forecast    Lo 80    Hi 80    Lo 95     Hi 95
## 121       61.44478 52.58047 70.30909 47.88799  75.00157
## 122       61.76170 47.06935 76.45406 39.29169  84.23172
## 123       61.86370 42.48557 81.24182 32.22741  91.49998
## 124       61.89652 38.60035 85.19270 26.26809  97.52495
## 125       61.90709 35.21664 88.59754 21.08757 102.72661
## 126       61.91049 32.19775 91.62322 16.46878 107.35219

The point forecast is around $62. It looks like the 95% confidence interval 6 months out has a high of$16 and a low of $107. We won’t dwell on these numbers because I imagine you will want to use your own model here - this code flow is more of a skeleton where other models can be inserted and then tested or evaluated at a later date. Let’s move on to visualizing the results of the forecast along with the historical data. A great feature of highcharter is that it accepts the results of forecast directly. We can pipe the model and forecast results directly to hchart(). auto.arima(oil_monthly) %>% forecast(h = 6) %>% hchart() %>% hc_title(text = "Oil historical and forecast") %>% hc_yAxis(title = list(text = "monthly price"), labels = list(format = "${value}"),
opposite = FALSE) %>%
hc_navigator(enabled = TRUE)
That’s all for today. We have gotten some familiarity with Quandl, used forecast() to predict the next six months of oil prices, and seen how smooth it is to pass forecasts to highcharter. Next time, we will wrap this into a Shiny app so that users can choose their own parameters, and choose different commodities. See you then!