A Study on Performance Analysis of Trading Stocks Listed in NEPSE
July 29, 2025 | Investopaper
This study provides a comprehensive comparative analysis of the Trading Index, comprising stocks of trading companies (listed in NEPSE), and the Nepal Stock Exchange (NEPSE) Index from July 18, 2003, to April 13, 2025. Using a dataset of 5,005 daily observations, the analysis evaluates performance metrics, volatility, drawdowns, and recovery periods through advanced statistical methods and visualizations. Key findings reveal a strong positive correlation (0.8525) between the indices, with the Trading Index outperforming the NEPSE Index in total returns (4754.20% vs. 1202.32%) but exhibiting higher volatility (1.7339% vs. 1.2722%).
1. Introduction
The Nepal Stock Exchange (NEPSE) Index serves as the benchmark for the overall market performance in Nepal, while the Trading Index tracks the performance of stocks of trading companies (e.g. Bishal Bazar Company Limited). This report analyzes the relative performance, risk characteristics, and correlation between these indices over a 22-year period (July 18, 2003, to April 13, 2025) using a dataset of 5,005 daily observations. The analysis employs statistical techniques, including return calculations, volatility assessments, drawdown analysis, and correlation tests, to provide insights for investors and portfolio managers.
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2. Data and Methodology
The dataset, sourced from Nepal Stock Exchange (NEPSE) website, includes daily values for the Trading Index and NEPSE Index. Key metrics calculated include:
Daily Returns: Percentage change in index values.
Volatility: 30-day rolling standard deviation of daily returns.
Drawdowns: Percentage decline from peak values
Cumulative Returns: Compounded returns over time
3. Descriptive Statistics
3.1 Summary Statistics
The dataset spans 5,005 observations from July 18, 2003, to April 13, 2025. The table below summarizes the key statistics for both indices.
Table 1: Summary Statistics of Trading and NEPSE Indices
| Metric | Trading Index | NEPSE Index |
|---|---|---|
| Minimum | 94.29 | 195.14 |
| 1st Quartile | 171.20 | 423.50 |
| Median | 209.79 | 925.20 |
| Mean | 782.22 | 1097.00 |
| 3rd Quartile | 292.51 | 1575.20 |
| Maximum | 5362.34 | 3199.03 |
3.2 Detailed Statistics
Additional metrics highlight the risk and return profiles:
Mean: NEPSE Index (1097.00) is higher than Trading Index (782.22).
Standard Deviation: Trading Index (1165.00) shows greater variability than NEPSE Index (764.00).
Coefficient of Variation (CV): Trading Index (1.49) indicates higher relative volatility than NEPSE Index (0.70).
Correlation: A strong positive correlation of 0.8525 exists between the indices.
Table 2: Detailed Statistics
| Metric | Trading Index | NEPSE Index |
|---|---|---|
| Mean | 782.22 | 1097.00 |
| Standard Deviation | 1165.00 | 764.00 |
| Coefficient of Variation | 1.49 | 0.70 |
| Correlation | 0.8525 (for both indices) |
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Figure 1: Time Series Comparison of Trading Vs Nepse Index
3.3 Return Statistics
Daily return statistics are summarized below:
Average Daily Return: Trading Index (0.0918%) vs. NEPSE Index (0.0594%).
Volatility of Returns: Trading Index (1.7339%) vs. NEPSE Index (1.2722%).
Table 3: Return Statistics
| Metric | Trading Index | NEPSE Index |
|---|---|---|
| Average Daily Return (%) | 0.0918 | 0.0594 |
| Standard Deviation of Returns (%) | 1.7339 | 1.2722 |
Figure 2: Distribution of Daily Returns
4. Performance Analysis
4.1 Total Returns
The Trading Index achieved a total return of 4754.20% over the analysis period, significantly outperforming the NEPSE Index’s 1202.32%. This indicates that trading companies delivered superior long-term growth compared to the broader market.
Figure 3: Cumulative Returns Comparison
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4.2 Risk-Adjusted Performance
The Sharpe Ratio, a measure of risk-adjusted returns, is slightly higher for the Trading Index (0.0530) than the NEPSE Index (0.0467), suggesting better returns per unit of risk despite higher volatility.
Table 4: Performance Metrics Dashboard
| Metric | Trading Index | NEPSE Index |
|---|---|---|
| Total Return (%) | 4754.20 | 1202.32 |
| Average Daily Return (%) | 0.0918 | 0.0594 |
| Volatility (%) | 1.7339 | 1.2722 |
| Sharpe Ratio | 0.0530 | 0.0467 |
| Max Value | 5362.34 | 3199.03 |
| Min Value | 94.29 | 195.14 |
4.3 Volatility Analysis
The Trading Index exhibits higher volatility (1.7339%) compared to the NEPSE Index (1.2722%). The 30-day rolling volatility plot illustrates periods of heightened market stress.
Figure 4: 30-Day Rolling Volatility Comparison
5. Drawdown Analysis
Drawdowns represent the percentage decline from peak values, indicating downside risk. Key findings include:
Maximum Drawdown: Trading Index (-66.56%) vs. NEPSE Index (-75.13%).
Average Drawdown: Trading Index (-23.02%) vs. NEPSE Index (-28.87%).
The NEPSE Index experienced deeper drawdowns, suggesting greater risk during market downturns. Significant drawdown periods exceeding 5% are listed below.
Table 5: Significant Drawdown Periods (>5%)
| Index | Period | Start Date | End Date | Max Drawdown (%) |
|---|---|---|---|---|
| Trading Index | 1 | 2021-05-31 | 2024-11-28 | -66.56 |
| Trading Index | 2 | 2010-09-14 | 2017-09-18 | -45.88 |
| Trading Index | 3 | 2017-09-24 | 2019-08-20 | -35.93 |
| NEPSE Index | 1 | 2008-09-02 | 2015-08-16 | -75.13 |
| NEPSE Index | 2 | 2021-08-31 | 2025-04-13 | -43.26 |
| NEPSE Index | 3 | 2016-10-23 | 2020-11-23 | -41.50 |
Figure 5: Drawdown Analysis-Trading Vs Nepse Index
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Figure 6: Drawdown Comparison-Trading Vs Nepse Index
6. Correlation Analysis
A correlation coefficient of 0.8525 (p-value = 0) indicates a strong positive relationship between the Trading and NEPSE Indices. The following statistical tests were conducted:
T-test for Mean Differences: t = -15.9862, p < 0.001, confirming significant differences in means (Trading: 782.22, NEPSE: 1097.00).
F-test for Variance Equality: F = 2.3255, p < 0.001, indicating higher variance in the Trading Index.
Correlation Test: Correlation = 0.8525, 95% CI [0.8447, 0.8599], p = 0.
Figure 7: Correlation Analysis
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7. Key Insights
Correlation: The strong positive correlation (0.8525) suggests that both indices are influenced by similar market factors, limiting diversification benefits.
Performance: The Trading Index’s total return of 4754.20% far exceeds the NEPSE Index’s 1202.32%, indicating superior growth potential.
Volatility: The Trading Index is more volatile (1.7339%) than the NEPSE Index (1.2722%).
Risk-Adjusted Returns: The Trading Index has a higher Sharpe Ratio (0.0530 vs. 0.0467), suggesting better risk-adjusted performance.
Drawdowns: The NEPSE Index experienced deeper maximum drawdowns (-75.13%) compared to the Trading Index (-66.56%).
8. Conclusion
The Trading Index has outperformed the NEPSE Index in total returns and risk-adjusted performance over the analysis period, despite higher volatility. However, its strong correlation with the NEPSE Index and significant drawdowns highlight the need for careful risk management. It is essential that investors implement stop-loss strategies during significant drawdowns. Investors should align their strategies with risk tolerance, monitor volatility, and consider market-wide factors when making investment decisions.
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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.
