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

July 4, 2025 | Investopaper

This study analyzes the performance of the Hydropower Index compared to the NEPSE Index from July 2007 to April 2025, covering 4,077 trading days. The analysis uses daily price data to evaluate returns, volatility, correlation, and risk-adjusted performance metrics. Key findings include:

The Hydropower Index achieved a total return of 311.35% compared to NEPSE’s 341.79%, indicating slightly lower overall growth.
Hydropower exhibited higher volatility (1.83%) than NEPSE (1.36%), suggesting greater price fluctuations.
A strong positive correlation (0.851) exists between the two indices, with a daily returns correlation of 0.694.
Maximum drawdowns were comparable, with Hydropower at 73.2% and NEPSE at 75.1%.
NEPSE showed a slightly higher risk-adjusted return (Sharpe-like ratio of 0.034) compared to Hydropower (0.028).

Data and Methodology

The dataset comprises daily price data for the Hydropower and NEPSE Indices from July 2007 to April 2025, totaling 4,077 observations. The data was sourced from Nepal Stock Exchange (NEPSE) website and processed using R. Key analytical steps included:

Converting date formats and calculating daily returns as percentage changes.
Computing 30-day moving averages for trend analysis.
Deriving volatility using 30-day rolling standard deviations of daily returns.
Calculating monthly returns for heatmap analysis.
Determining performance metrics such as total return, annualized return, volatility, maximum drawdown, and beta.

All calculations exclude missing values, and visualizations were created with consistent styling for clarity.

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Basic Statistics

Index Values

Index	Min	1st Qu.	Median	Mean	3rd Qu.	Max
Hydropower	458.1	962.2	1553.0	1681.7	2294.6	3894.8
NEPSE	292.3	660.4	1163.9	1275.6	1839.0	3199.0

The Hydropower Index ranged from 458.1 to 3,894.8, with a mean of 1,681.7, while NEPSE ranged from 292.3 to 3,199.0, with a mean of 1,275.6. The Hydropower Index generally exhibited higher values, reflecting its sector-specific growth.

Daily Returns

Index	Min	1st Qu.	Median	Mean	3rd Qu.	Max
Hydropower	-8.03	-0.86	-0.08	0.05	0.76	9.36
NEPSE	-6.97	-0.64	-0.05	0.05	0.65	6.06

Daily returns for Hydropower ranged from -8.03% to 9.36%, with a mean of 0.05%, while NEPSE returns ranged from -6.97% to 6.06%, with a similar mean of 0.05%. Hydropower showed slightly higher variability in returns.

Performance Metrics

Metric	Hydropower	NEPSE
Start Value	834.00	603.00
End Value	3430.00	2662.00
Total Return (%)	311.35	341.79
Annualized Return (%)	8.27	8.71
Volatility (%)	1.83	1.36
Max Value	3894.80	3199.00
Min Value	458.10	292.30
Max Drawdown (%)	73.20	75.10

NEPSE outperformed Hydropower in total return (341.79% vs. 311.35%) and annualized return (8.71% vs. 8.27%). However, Hydropower exhibited higher volatility (1.83% vs. 1.36%). Both indices experienced significant drawdowns, with NEPSE slightly higher at 75.1% compared to Hydropower’s 73.2%.

Major Factors Influencing The Share Market Of Nepal

Risk-Adjusted Returns

Assuming a risk-free rate of 0%, the Sharpe-like ratios are:

Hydropower: 0.028
NEPSE: 0.034

NEPSE’s higher Sharpe-like ratio indicates better risk-adjusted returns, reflecting lower volatility relative to its average return.

Visual Analysis

Time Series Plot

The time series plot illustrates the Hydropower and NEPSE Index values from 2007 to 2025. Both indices show upward trends, with Hydropower generally maintaining higher values but experiencing similar patterns of growth and decline as NEPSE.

Figure 1: Hydropower Vs Nepse Index over the Years

Normalized Performance

The normalized performance plot, with a base value of 100 at the start date, shows NEPSE achieving higher growth (441.79%) compared to Hydropower (411.35%) by April 2025. This highlights NEPSE’s stronger relative performance over the period.

Figure 2: Normalized Performance Comparision Between Hydropower and Nepse Index

30-Day Moving Average

The 30-day moving average plot smooths daily fluctuations, revealing that Hydropower and NEPSE follow similar long-term trends. Hydropower’s moving average consistently tracks above NEPSE, reflecting its higher index values.

Figure 3: 30 Day Moving Average Trends

Correlation Scatter Plot

The scatter plot with a linear regression line confirms the strong positive correlation (0.851) between the indices.

Figure 4: Correlation Scatterplot of Hydropower and Nepse Index

Daily Returns Distribution

Histograms and box plots of daily returns show that Hydropower has a wider range of returns (-8.03% to 9.36%) compared to NEPSE (-6.97% to 6.06%). Both indices have similar median returns, but Hydropower exhibits more extreme outliers.

Daily Returns Distribution in Histogram

Figure 5: Histogram of Daily Percentage Returns

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Daily Returns Distribution in Boxplot

Figure 6: Boxplot comparing Daily Return Distribution

Volatility Analysis

The 30-day rolling volatility plot indicates that Hydropower generally experiences higher volatility (peaking above 3%) compared to NEPSE, which remains more stable. Both indices show periods of heightened volatility during market stress.

Figure 7: 30-Day Rolling Volatility

Monthly Returns Heatmap

Heatmaps of monthly returns highlight seasonal and yearly performance patterns. Both indices show periods of strong positive and negative returns, with Hydropower exhibiting more pronounced negative months compared to NEPSE.

Figure 8: NEPSE Monthly Returns Heatmap

Figure 9: Hydropower Monthly Returns Heatmap

Drawdown Analysis

The drawdown plot reveals significant peak-to-trough declines, with Hydropower reaching a maximum drawdown of 73.2% and NEPSE at 75.1%. Both indices experienced prolonged recovery periods following major drawdowns.

Figure 10: Monthly Returns Heatmap

Conclusion

The Hydropower Index, while closely correlated with NEPSE (0.851), underperformed NEPSE in terms of total and annualized returns over the 2007-2025 period. Hydropower’s higher volatility (1.83% vs. 1.36%) and slightly lower risk-adjusted returns (0.028 vs. 0.034) suggest greater risk compared to NEPSE. Investors in the Hydropower sector should be prepared for higher volatility and potentially lower returns compared to the broader NEPSE market, though both indices show significant growth potential.