A Comprehensive Study of Performance of Finance Index vs Nepse Index [2003–2025]

July 22, 2025 | Investopaper

This study provides a detailed analysis of the performance of the Finance Index, comprising ‘C’ class finance companies in Nepal, compared to the NEPSE Index from July 2003 to April 2025. Using advanced statistical techniques and visualizations, the study evaluates performance, volatility, and risk profiles. Key findings include a strong positive correlation (0.8825) between the indices, higher volatility in the Finance Index (1.66% daily) compared to the NEPSE Index (1.27%), and a higher total return for the NEPSE Index (1202.32%) versus the Finance Index (1114.76%). The Finance Index exhibits greater risk, with a maximum drawdown of -80.37% compared to -75.13% for the NEPSE Index.

1 Introduction

The Finance Index tracks the performance of ‘C’ class finance companies in Nepal, while the NEPSE Index represents the broader Nepalese stock market. This study compares their performance, volatility, and risk characteristics over the period from July 2003 to April 2025. The analysis provides a robust foundation for understanding the finance stocks dynamics relative to the overall market.

2 Methodology

2.1 Data Source and Preparation

The dataset, sourced from Nepal Stock Exchange (NEPSE) website includes daily index values for the Finance and NEPSE Indices from July 2003 to April 2025. Data processing involved calculating:

— Daily and monthly returns

— Normalized performance (percentage change from the starting value)

— Spread (Finance Index – NEPSE Index)

— Cumulative returns and maximum drawdowns

The analysis encompasses descriptive statistics, volatility measures, correlation analysis, risk metrics (Value at Risk, Sharpe Ratio) as well as informative visualizations.

Also Read:

Analysis of the Relationship Between Commercial Bank Index and NEPSE Index (2003–2025)

Performance Analysis of Hotel Index Vs. NEPSE Index (2003–2025)

3 Results and Analysis

3.1 Descriptive Statistics

The Finance Index has a mean of 811.6 points, a median of 589.1, a standard deviation of 722.0, and a range from 192.0 to 3975.5. The NEPSE Index shows a higher mean of 1097.0, a median of 925.2, a standard deviation of 722.0, and a range from 195.1 to 3199.0. The coefficient of variation indicates higher relative variability for the Finance Index (88.97%) than the NEPSE Index (65.82%).

Table 1: Summary Statistics of Finance and NEPSE Indices

Metric	Finance Index	NEPSE Index
Mean	811.6	1097.0
Median	589.1	925.2
Standard Deviation	722.0	722.0
Minimum	192.0	195.1
Maximum	3975.5	3199.0
1st Quartile (Q1)	277.7	423.5
3rd Quartile (Q3)	898.9	1575.2
Interquartile Range (IQR)	621.2	1151.7
Coefficient of Variation (%)	88.97	65.82

3.2 Volatility Analysis

The Finance Index exhibits higher daily volatility (1.66%) than the NEPSE Index (1.27%). The Finance Index’s returns show significant positive skewness (2.35) and higher kurtosis, indicating more extreme returns compared to the NEPSE Index (skewness: 0.385).

Table 2: Volatility and Distribution Statistics

Metric	Finance Index	NEPSE Index
Daily Volatility (%)	1.66	1.27
Skewness	2.35	0.385
Kurtosis	High	Moderate

3.3 Correlation Analysis

A strong positive correlation of 0.8825 (p-value: 0, 95% CI: [0.8762, 0.8885]) exists between the indices, indicating that the Finance Index closely tracks the NEPSE Index.

3.4 Risk Metrics

The Finance Index experienced a higher maximum drawdown (-80.37%, May 12, 2013) than the NEPSE Index (-75.13%, June 15, 2011). Recovery took 2888 days for the Finance Index and 1526 days for the NEPSE Index. The Value at Risk (VaR) at 95% confidence is -1.95% for the Finance Index and -1.85% for the NEPSE Index.

Table 3: Risk Metrics Comparison

Metric	Finance Index	NEPSE Index
Maximum Drawdown (%)	-80.37	-75.13
Date of Max Drawdown	May 12, 2013	June 15, 2011
Recovery Time (days)	2888	1526
VaR (95%) (%)	-1.95	-1.85

3.5 Performance Metrics

The NEPSE Index outperformed with a total return of 1202.32% compared to 1114.76% for the Finance Index. The Sharpe Ratio, assuming a 2% annualized risk-free rate, is 0.0335 for the Finance Index and 0.0404 for the NEPSE Index, indicating better risk-adjusted returns for the NEPSE Index.

Suggested Reading:

Comparative Performance Analysis of Life Insurance Index and NEPSE Index

Performance Analysis of Non-Life Insurance Index

3.6 Monthly Performance

The Finance Index has an average monthly return of 1.28% with a volatility of 8.68%, while the NEPSE Index has an average monthly return of 1.22% with a volatility of 7.47%. The best month for the Finance Index was July 2024 (45.43%), and the worst was September 2021 (-27.58%). For the NEPSE Index, the best month was April 2012 (35.20%), and the worst was March 2020 (-21.36%).

Table 4: Monthly Performance Summary

Metric	Finance Index	NEPSE Index
Average Monthly Return (%)	1.28	1.22
Monthly Volatility (%)	8.68	7.47
Best Month	Jul 2024 (45.43%)	Apr 2012 (35.20%)
Worst Month	Sep 2021 (-27.58%)	Mar 2020 (-21.36%)

3.7 Visualizations

The following visualizations provide insights into the indices’ performance:

Figure 1: Time Series Plot – Displays daily index values, highlighting trends.

Comparative Performance Analysis of Microfinance Index vs. NEPSE Index

Figure 2: Normalized Performance – Compares percentage changes from the starting value.

Figure 3: Scatter Plot – Shows the correlation with a regression line.

Figure 4: Box Plot – Compares the distribution of index values.

Analysis of Performance of Hydropower Index Compared to NEPSE Index (2007-2025)

Figure 5: Returns Distribution – Histograms of daily returns

Figure 6: Spread Analysis – Shows the difference between indices

Figure 7: Maximum Drawdown – Visualizes peak-to-trough declines.

Figure 8: Underwater Plot – Focuses on periods below previous peaks for the Finance Index.

5. Key Findings and Conclusions

Correlation: A strong positive correlation (0.8825) indicates that the Finance Index closely follows the NEPSE Index.

Volatility: The Finance Index is more volatile (1.66% daily, 8.68% monthly) than the NEPSE Index (1.27% daily, 7.47% monthly).

Performance: The NEPSE Index achieved a higher total return (1202.32%) and better risk-adjusted returns (Sharpe Ratio: 0.0404) compared to the Finance Index (1114.76%, Sharpe Ratio: 0.0335).

Risk Assessment: The Finance Index has a higher maximum drawdown (-80.37%) and longer recovery time (2888 days) than the NEPSE Index (-75.13%, 1526 days). The VaR (95%) is slightly higher for the Finance Index (-1.95% vs. -1.85%).

Monthly Performance: The Finance Index shows higher monthly volatility and extreme returns, with a peak in July 2024 (45.43%) and a trough in September 2021 (-27.58%).

Market Dynamics: The Finance Index underperformed the NEPSE Index on average, with a negative spread of -285.41 points.

Conclusion:

The Finance Index’s higher volatility and risk suggest caution for risk-averse investors. Diversifying across sectors may reduce exposure to financial sector risks.

More From Investopaper:

History of NEPSE: Battle Of Bulls And Bears (A Study Of 23 Years)

Nepse Index & Interest Rate (A Study Of 27 Years)

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.