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Important note: The calculators currently use "adjusted close" as opposed to "close" price. Please read more on the bottom of this page as to why if you are interested. This price may differ from some price charts you see online

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Adjusted Close vs. Close in Historical Stock Performance

When measuring historical stock performance, choosing between Adjusted Close and Close prices is crucial, as they serve different purposes and can lead to different insights. Here's a breakdown of each and their implications for historical analysis:

Close Price:

  • Definition: The Close price is the price of a stock at the end of a trading day. It represents the final price at which the stock was traded during regular market hours.
  • Usage:
    • Raw Performance Analysis: Close prices are used when you want to see the actual historical price a stock traded at, without any adjustments for corporate actions like dividends, stock splits, or spin-offs.
    • Short-Term Analysis: If you're analyzing short-term price movements or the behavior of a stock over a brief period, Close prices might be sufficient.
    • Trading Strategy Backtesting: For strategies that involve short-term trading, Close prices are often used to simulate historical buy and sell points.

Adjusted Close Price:

  • Definition: The Adjusted Close price is the Close price modified to account for corporate actions like dividends, stock splits, and spin-offs. This adjustment provides a more accurate reflection of the stock's total return.
  • Usage:
    • Total Return Analysis: Adjusted Close prices are essential when measuring the performance of a stock over time, as they include the effects of dividends and corporate actions that would have impacted an investor's actual returns.
    • Long-Term Analysis: For long-term investment analysis or historical performance studies, Adjusted Close prices are preferable because they reflect the cumulative effect of dividends and stock splits, giving a more accurate picture of an investor's returns.
    • Comparative Analysis: When comparing the performance of different stocks, Adjusted Close prices allow for a fair comparison, as they normalize the data to account for different corporate actions.

Key Differences and Considerations:

  • Dividends:
    • Close Price: Does not account for dividends. If a stock pays a dividend, the Close price will drop by the dividend amount on the ex-dividend date, but this drop is not adjusted.
    • Adjusted Close: Accounts for dividends by adjusting the historical prices to reflect the total return an investor would have received, including reinvested dividends.
  • Stock Splits:
    • Close Price: After a stock split, the Close price drops proportionally to the split ratio (e.g., a 2-for-1 split halves the price).
    • Adjusted Close: Adjusts all historical prices before the split so that the entire price series reflects the impact of the split. This adjustment makes it easier to analyze performance over time.
  • Spin-Offs and Other Corporate Actions:
    • Close Price: Remains unadjusted for events like spin-offs, leading to sudden price drops that can distort performance analysis.
    • Adjusted Close: Adjusts for these events, ensuring that the price series reflects the actual economic value delivered to shareholders.

Which One to Use?

  • For Long-Term Performance Measurement: Always use Adjusted Close prices. They give a true reflection of the stock's performance by incorporating dividends, stock splits, and other corporate actions that impact total returns.
  • For Short-Term Price Movement Analysis: Close prices might be more appropriate, especially if you're interested in the actual trading prices without adjustments.
  • For Strategy Backtesting: Depending on the strategy, both might be relevant. For strategies involving long-term investments, use Adjusted Close. For short-term or intraday strategies, use Close.

Example:

Imagine a stock is priced at $100, pays a $5 dividend, and then undergoes a 2-for-1 stock split.

  • Close Price:
    • The price will drop to $95 after the dividend and then drop to $47.50 after the split.
    • This might seem like a loss, but it doesn’t account for the actual value received by the investor.
  • Adjusted Close Price:
    • The Adjusted Close will adjust historical prices to reflect these actions, showing a consistent performance line that accounts for the dividend and split, reflecting the true total return of the stock.

In summary, Adjusted Close prices are typically the better choice for measuring historical stock performance over the long term, as they provide a complete picture of an investor's returns by accounting for dividends and other corporate actions.