Which exponential smoothing constant value corresponds to a 5-period moving average in terms of weight assigned to the most recent data point?

In exponential smoothing, the smoothing constant, commonly denoted as alpha (α), determines how much weight is given to the most recent observation relative to the historical data. The key aspect to consider is how the value of alpha impacts the weight assigned to the most recent data point in relation to previous observations.

When using a 5-period moving average, the weight assigned to the most recent observation is typically distributed evenly among the five most recent periods, leading to each having a weight of 1/5 or 0.2. Given this, an alpha value of 0.2 corresponds directly to the choice that would balance the influence of the most recent observation against the previous data points in a manner similar to the 5-period moving average.

In this context, higher alpha values, such as 0.5, 0.8, or lower values like 0.1, would either significantly weight the most recent observation too heavily or too lightly compared to a simple moving average. Hence, an alpha of 0.2 effectively represents the appropriate weight that is consistent with a 5-period moving average by harmonizing the importance of the most recent data and historical context.