A COMPARATIVE STUDY ON RISK AND RETURN ANALYSIS OF NEPALESE INSURANCE COMPANIES

Abstract

This study focuses on the common stock investment among other securities. Investors of common stock are ultimate owner of the company, who are ultimately associated with risk and return. So to maximize the share price, the finance manager must learn to assets two key determinants risk and return. In become easier when there is existence of developed and healthy stock market in the country. Risk and return is getting considerable attention in financial management. To measure the risk and return associated with the stocks of sample insurance companies. To segregate the total risk of individual stock into systematic and unsystematic risk and scrutinize its relation with return on stock and to find their consistencies. Today each and every decision-making is based on financial, as it is an important branch of economy. As we have discussed above major target of the study is the potential investor who wants to invest in the securities market but repel due to imagination of unreal risk. So, the study will be more significant for exploring and increasing stock investment. It will also provide little contribution in the stock market development. Highest portfolio return is 6.55% which is formed from the combination of EIC & EIC. Similarly the lowest portfolio return is -3 % of EIC &UICL. The portfolio analysis indicates that forming portfolio can reduce minimum level of the risk. EIC stock has highest unsystematic risk whereas HGIC has lowest unsystematic risk among sample firm’s stock. As Beta coefficient measures the systematic risk and explains the sensitivity or volatility of the stock with market. The beta coefficient of various sample companies of PIC, EIC, HGIC, UICL and NLGIC are -0.1658, -0.1220, 0.5415, 0.9783 and 0.6788 respectively. Since beta coefficient of all companies except NLGIC is greater than 1. It indicates the share is more risky or volatile than market except NLGIC. The CAPM analysis indicated that the sample of insurance company's stocks except NLGIC is underpriced. While partitioning risk the systematic risk proportion of PIC, EIC, HGIC & NLGIC are 96.79%, 8.60%, 95.61%, 91.99% and 90.26% respectively. Stock of PIC, HGIC, and UICL has high systematic risk among five insurance companies. The stock of NLGIC has equaled both risks. This evidence indicates that while constructing a portfolio to minimize the risk EIC stock is preferable because the investors can minimize the portfolio risk.