Comprehensive Analysis of Performance of Development Bank Stocks Listed in NEPSE (July 2003 – April 2025)

July 25, 2025 | Investopaper

This study presents a detailed comparative analysis of the Development Bank Index, comprising ‘B’ class development banks in Nepal, against the NEPSE Index over the period from July 2003 to April 2025. Utilizing advanced statistical techniques and visualizations, the analysis evaluates key performance metrics including returns, volatility, correlation, beta, and risk-adjusted measures such as the Sharpe Ratio. The findings highlight the Development Bank Index’s superior total return of 2084.34% compared to the NEPSE Index’s 1202.32%, albeit with higher volatility (1.8959% vs. 1.2690%).

1. Introduction

The Development Bank Index represents index comprising stocks of ‘B’ class development banks in Nepal, and the NEPSE Index represents the benchmark for the Nepal Stock Exchange. This study conducts a rigorous comparative analysis to assess their relative performance from July 2003 to April 2025. The analysis leverages daily data to compute returns, volatility, correlation, beta, and risk-adjusted metrics, supplemented by visualizations to aid interpretation.

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2. Data and Methodology

2.1 Data Source

The dataset, sourced from Nepal Stock Exchange (NEPSE) website, contains daily values of the Development Bank Index and NEPSE Index from July 2003 to April 2025. The data frequency is 5005, reflecting daily observations over the period.

2.2 Methodology

The analysis employs the following techniques:

Returns Calculation: Logarithmic returns are computed.

Drawdown Analysis: Drawdowns are calculated.

Volatility: Standard deviation of daily returns over a 10-day rolling window.

Correlation and Beta: Pearson correlation for price and return series, and linear regression for beta estimation.

Risk-Return Metrics: Mean returns, volatility, and Sharpe Ratio (Mean Return / Volatility).

3. Results and Analysis

3.1 Descriptive Statistics

Table 1 summarizes the descriptive statistics for both indices.

Table 1: Descriptive Statistics of Index Values

Metric	Development Bank Index	NEPSE Index
Minimum	138.83	195.14
1st Quartile	293.30	423.50
Median	930.20	925.20
Mean	1492.00	1097.00
3rd Quartile	1839.90	1575.20
Maximum	6292.89	3199.03

The Development Bank Index exhibits a wider range (138.83 to 6292.89) compared to the NEPSE Index (195.14 to 3199.03), indicating greater variability in performance.

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3.2 Performance Metrics

The Development Bank Index significantly outperformed the NEPSE Index, achieving a total return of 2084.34% compared to 1202.32% for the NEPSE Index. Similarly, the Development Bank Index’s mean daily return (0.0616%) is marginally higher than the NEPSE Index’s (0.0513%).

Figure 1: Time Series Comparison of Development Bank Index vs. NEPSE Index

Distribution of Daily Returns

Figure 2: Distribution of Daily Returns

3.3 Volatility Analysis

Volatility, measured as the standard deviation of daily returns, is higher for the Development Bank Index (1.8959%) than for the NEPSE Index (1.2690%). The 10-day rolling volatility comparison confirms that the Development Bank Index consistently exhibits higher volatility, suggesting greater risk.

Figure 3: 10-day rolling volatility comparison

3.4 Correlation Analysis

The price correlation between the indices is strong (0.9475), indicating similar directional movements. However, the return correlation is moderate (0.5085), suggesting differences in daily return patterns.

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3.5 Beta Analysis

The beta of the Development Bank Index relative to the NEPSE Index is 0.7598, indicating lower sensitivity to market movements. The alpha (0.0227%) suggests a slight positive excess return, with an R-squared of 0.2586, indicating that 25.86% of the Development Bank Index’s return variability is explained by the NEPSE Index.

Figure 4: Development Bank Returns vs. NEPSE Returns with Regression Line

3.6 Risk-Return Analysis

The Sharpe Ratio for the Development Bank Index (0.0325) is lower than that of the NEPSE Index (0.0404), indicating that the NEPSE Index offers better risk-adjusted returns despite lower total returns.

3.7 Drawdown Analysis

The drawdown analysis reveals periods of significant declines from historical peaks for both indices. The Development Bank Index experiences deeper drawdowns, consistent with its higher volatility.

Figure 5: Maximum Drawdown analysis

Price Vs Peak Visualization

Figure 6: Price Vs Peak Visualization

3.10 Relative Performance

In the figure 7, the relative performance ratio (Development Bank Index / NEPSE Index) frequently exceeds 1, indicating consistent outperformance by the Development Bank Index.

Figure 7: Relative Performance (Development Bank / NEPSE)

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4. Summary of Findings

The following table consolidates key metrics for both indices:

Table 2: Summary of Key Performance Metrics

Metric	Development Bank	NEPSE
Mean Return (%)	0.0616	0.0513
Volatility (%)	1.8959	1.2690
Sharpe Ratio	0.0325	0.0404
Min Value	138.83	195.14
Max Value	6292.89	3199.03
Total Return (%)	2084.34	1202.32

Key Findings:

The Development Bank Index significantly outperforms the NEPSE Index in total return (2084.34% vs. 1202.32%).

Higher volatility in the Development Bank Index (1.8959% vs. 1.2690%) indicates greater risk.

The NEPSE Index offers a better risk-adjusted return (Sharpe Ratio: 0.0404 vs. 0.0325).

Strong price correlation (0.9475) but moderate return correlation (0.5085) suggests differing short-term dynamics.

A beta of 0.7598 indicates lower market sensitivity for the Development Bank Index.

5. Conclusion

The Development Bank Index has demonstrated superior total returns compared to the NEPSE Index over the analysis period. However, this outperformance comes with higher volatility and deeper drawdowns, indicating increased risk. The NEPSE Index, while less volatile, offers better risk-adjusted returns. Investors seeking higher returns may favor the Development Bank Index, but those prioritizing stability may prefer exposure to the broader NEPSE Index.

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This analysis is based on historical data from July 2003, to April 2025, and past performance does not guarantee future results. Investment decisions should consider individual risk tolerance, investment objectives, and current market conditions.