Adjusted Close Price: What It Means and Why It Matters

Published May 27, 2025

If you've ever looked at historical stock data, you've likely seen something called the adjusted close price. But what exactly is it — and why does BackAlpha use it for strategy backtesting?

What Is Adjusted Close?

The adjusted close price is the historical closing price of a stock or ETF, modified to account for events like dividends, stock splits, and reverse splits. It reflects the true economic return to an investor who reinvests all dividends.

For example, if a company pays a dividend or undergoes a 2-for-1 stock split, the raw closing price alone would give a misleading impression of the stock's real value growth. The adjusted close fixes that by incorporating those changes.

Why Does It Matter?

If you're trying to evaluate a long-term strategy, you want to know how your total return would have evolved — not just the share price. The adjusted close gives you that full picture by assuming you reinvest dividends and track price impact from splits.

Without it, you'd underestimate performance — especially for dividend-paying stocks or ETFs like SPY or VTI, where reinvested dividends are a major part of total return.

How BackAlpha Uses Adjusted Close

Most of the strategies on BackAlpha — including Buy and Hold and Dollar Cost Averaging — use adjusted close prices by default. This ensures that all returns, drawdowns, and growth metrics reflect total return, not just price movement.

Dividends are assumed to be reinvested automatically
Splits and reverse splits are accounted for cleanly
Comparisons across time are more accurate and realistic

Raw Close vs Adjusted Close

The raw close price shows what the stock traded at on that day. The adjusted close tells you what that price means in the context of total return. If your goal is to analyze performance over time, adjusted close is almost always the right choice.

Curious how this affects your strategy? Start with a Buy and Hold simulation or explore Dollar Cost Averaging results to see how adjusted prices shape long-term performance.