Abstract: This study investigates the historical performance, risk-return profile, and correlation of green bonds relative to traditional fixed income securities. Using monthly data from January 2021 to December 2024, the research evaluates the price trends of IRFC green bonds and PFC traditional bonds. Findings reveal that although traditional bonds achieved higher peak prices, green bonds exhibited more consistent and stable performance over time. The price correction phase for green bonds was notably smoother, reflecting reduced volatility and better resilience.

Key risk-return metrics—including the Sharpe ratio, standard deviation, and beta—further reinforce the attractiveness of green bonds. With a Sharpe ratio of 64.76 and a standard deviation of 60.47%, green bonds deliver strong risk-adjusted returns and moderate volatility, making them suitable for conservative and ESG-focused investors. Additionally, the beta value of 0.0182 indicates minimal market sensitivity, highlighting their potential role in portfolio diversification.

Moreover, the correlation analysis shows a strong positive relationship (r = 0.9847) between the returns of green and traditional bonds, suggesting their performance is influenced by common economic and financial drivers. The study concludes by affirming that green bonds not only offer a favourable risk-return balance but also align closely with the broader fixed income market trends. These findings contribute to a better understanding of green financial instruments and support their inclusion in sustainable investment strategies.

Keywords: Green Bonds, Traditional Fixed Income Securities, Bond Performance, ESG Investment.

Downloads: | DOI: 10.17148/IARJSET.2025.12659