Performance Analysis of Manufacturing & Processing Index (vs Nepse Index)
July 8, 2025 | Investopaper
This study presents a comprehensive analysis of the performance of the Manufacturing and Processing Index (MPI) compared to the NEPSE Index over the period from July 17, 2003, to April 13, 2025. Utilizing data from 5,005 trading days, the study examines trends, correlations, volatility, returns, and drawdowns through various statistical and visual methods. Key findings include the superior total return of the MPI, higher volatility, and a strong positive correlation with the NEPSE Index.
1. Introduction
The Manufacturing and Processing Index (MPI) tracks the performance of stocks in the manufacturing and processing sector, while the NEPSE Index represents the broader Nepalese stock market. This analysis compares their performance over a 22-year period (July 17, 2003, to April 13, 2025) using a dataset of 5,005 trading days. The study employs time series analysis, normalized performance comparisons, correlation analysis, volatility assessments, and drawdown evaluations to provide insights into their relative performance and risk characteristics.
2. Data and Methodology
The dataset, sourced from Nepal Stock Exchange (NEPSE) website, includes daily values for the MPI and NEPSE Index.
Key analyses include:
- Time series and normalized performance comparisons
- Correlation and rolling correlation analysis
- Volatility and daily returns distribution
- Monthly aggregated performance
- Maximum drawdown analysis
- Performance metrics (returns, volatility, Sharpe ratio, beta)
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3. Results and Analysis
3.1 Time Series Comparison
The time series plot illustrates the performance of both indices from July 2003 to April 2025. The MPI grew from 250.13 to 7,015.13, achieving a total return of 2,704.59%, while the NEPSE Index increased from 204.41 to 2,662.08, yielding a total return of 1,202.32%. The MPI consistently outperformed the NEPSE Index, reaching a peak of 8,328.61 compared to the NEPSE’s peak of 3,199.03.
Figure 1: Time Series Plot of Manufacturing & Processing Index and Nepse Index
3.2 Normalized Performance
Normalizing both indices to a base value of 100 on July 17, 2003, highlights their relative growth. The MPI’s normalized value reached significantly higher levels than the NEPSE Index, reflecting its superior growth rate over the period.
Figure 2: Normalized Performance Comparison of Manufacturing & Processing Index and Nepse Index
3.3 Correlation Analysis
The correlation coefficient between the MPI and NEPSE Index is 0.953, indicating a strong positive relationship. A scatter plot with a linear regression line confirms this high correlation, suggesting that movements in the MPI are closely aligned with those in the NEPSE Index.
Figure 3: Correlation Between Manufacturing & Processing Index and Nepse Index
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3.4 Monthly Aggregated Performance
Monthly average index values show that the MPI generally maintained higher values than the NEPSE Index across most months, reinforcing its stronger performance trend.
Figure 4: Monthly Average Index Values
3.5 Volatility and Returns
The MPI exhibited higher volatility (1.62%) compared to the NEPSE Index (1.27%). Daily returns analysis reveals that the MPI’s returns were more variable, as shown in the distribution histograms. The MPI’s annualized return was 16.56%, surpassing the NEPSE Index’s 12.52%.
Figure 5: Distribution of Daily Returns
3.6 Sharpe Ratio
Using a daily risk-free rate derived from an annual 5% rate, the Sharpe ratio for the MPI is 0.041, slightly higher than the NEPSE Index’s 0.036, indicating a marginally better risk-adjusted return for the MPI.
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3.7 Beta
The beta of the MPI relative to the NEPSE Index is 0.362, suggesting that the MPI is less sensitive to market movements, as it exhibits lower systematic risk compared to the broader market.
3.8 Maximum Drawdown
The maximum drawdown analysis reveals the largest peak-to-trough declines for each index, with manufacturing and processing index reaching a maximum drawdown of 45.5% and NEPSE at 75.1%. Figure 6 indicates significant declines during certain periods, with annotated maximum drawdown points for both indices.
Figure 6: Maximum Drawdown Analysis
3.9 Rolling Correlation
A 30-day rolling correlation analysis shows fluctuations in the correlation coefficient over time, with the overall correlation remaining strong at 0.953. Periods of lower correlation indicate temporary divergences in performance.
Figure 7: 30-Day Rolling Correlation
4. Performance Summary
Table 1: Performance Metrics Summary (July 2003 – April 2025)
| Metric | Manufacturing & Processing Index | NEPSE |
| Starting Value | 250.13 | 204.41 |
| Ending Value | 7,015.13 | 2,662.08 |
| Total Return (%) | 2,704.59 | 1,202.32 |
| Annualized Return (%) | 16.56 | 12.52 |
| Volatility (%) | 1.62 | 1.27 |
| Max Value | 8,328.61 | 3,199.03 |
| Min Value | 194.76 | 195.14 |
Superior Long-term Performance: The Manufacturing & Processing Index demonstrated exceptional outperformance over the analysis period:
- Total returns: 2,705% vs 1,202% for NEPSE,
- Annualized returns: 16.56% vs 12.52% for NEPSE,
- Performance differential: 4.04 percentage points annually
Correlation: The MPI and NEPSE Index exhibit a strong positive correlation (0.953), indicating that they are influenced by similar market factors.
Volatility: The MPI shows higher volatility (1.62%) compared to the NEPSE Index (1.27%), suggesting greater price fluctuations.
Period Analyzed: The analysis covers July 17, 2003, to April 13, 2025, spanning 5,005 trading days.
Beta: With a beta of 0.362, the MPI is less sensitive to market movements, indicating lower systematic risk relative to the NEPSE Index.
Sharpe Ratio: The MPI’s Sharpe ratio of 0.041 slightly exceeds the NEPSE Index’s 0.036, suggesting a marginally better risk-adjusted return.
Performance: The MPI significantly outperformed the NEPSE Index, with a total return of 2,704.59% compared to 1,202.32%.
Risk Profile: Despite higher returns, the MPI’s higher volatility indicates a riskier investment profile compared to the broader market.
6. Conclusion
The Manufacturing and Processing stocks demonstrated superior performance compared to the NEPSE Index from July 2003 to April 2025, with a total return of 2,704.59% and an annualized return of 16.56%. However, this came with higher volatility (1.62%) compared to the NEPSE Index (1.27%). The strong correlation (0.953) suggests that both indices are influenced by similar market dynamics, though the MPI’s lower beta (0.362) indicates reduced sensitivity to market movements. Investors seeking higher returns may favor the MPI, but its higher volatility suggests a need for careful risk management.
The 4.04 percentage point annual outperformance, combined with acceptable risk-adjusted returns, makes a compelling case for strategic allocation to the manufacturing and processing sector within equity portfolios. However, investors must remain cognizant of the higher volatility and implement appropriate risk management strategies.
This analysis is based on historical data from July 17, 2003, to April 13, 2025, and past performance does not guarantee future results. Investment decisions should consider individual risk tolerance, investment objectives, and current market conditions.
