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Historical Price Data is Adjusted for Splits, Dividends and Distributions
Dividend Adjustment Calculation Details
Split Adjustment Calculation Details
At StockCharts, we adjust our historical price data to remove gaps caused by stock splits, dividends and distributions. That may cause our charts to look different from other services that do not perform the same adjustments.
For example, if a stock splits 2-for-1, the price is suddenly half of what it used to be, creating a large gap down on the chart. If you were unaware of the split, the chart would give you the impression that something bearish happened to the underlying company. In addition, most of the technical indicators on that chart would give sell signals because of the big drop in prices. Even though such a split is generally considered a neutral event, an unadjusted chart would contain lots of bearish signals.
In order to prevent these kinds of misleading signals from appearing on our charts, we adjust all the historical data prior to the event. In the case of a 2-for-1 split, we divide all of the historical prices for the stock by 2, then multiply all of the historical volume by 2 so that the bars prior to the split match up smoothly with the bars that appear after the split.
In addition to performing adjustments that remove large gaps caused by splits, we also adjust our historical data to remove smaller gaps caused by dividends and distributions. By making these additional adjustments, we ensure that all price movements on our charts are caused by pure market forces - that is, the forces that Technical Analysis attempts to identify.
While these adjustments are very important for accurate technical signals, they can cause problems in the following circ*mstances:
Our adjusted historical price data cannot be used to determine the actual buy or sell price for a stock at some point in the past.
Our adjusted historical price data may not match up with unadjusted data from other sources.
Adjusting historical price data can cause P&F reversal points to change if “Traditional” box scaling is used (the default).
Whenever a stock's historical data is adjusted, we add it to the list of recent adjustments on our Recent Data Adjustments page.
IMPORTANT NOTE: If you want to see an unadjusted chart for a stock, add an underscore character (“_”) to the front of the ticker symbol.
Dividend Adjustment Calculation Details
Historical prices are adjusted by a factor that is calculated when the stock begins trading ex-dividend. The amount of the dividend is subtracted from the prior day’s price; that result is then divided by the prior day’s price. Historical prices are subsequently multiplied by this factor.
Let's look at this example. A stock closes at $40.00 on Monday. On Tuesday, it begins trading ex-dividend based on a $2.00 dividend. If the stock opens unchanged, it will be trading at $38.00. Unless we adjust the prior prices, the chart will show a misleading $2.00 gap.
To calculate the adjustment factor, we subtract the $2.00 dividend from Monday's closing price ($40.00 - $2.00 = $38.00). Then, we divide 38.00 by 40.00 to determine the dividend adjustment in percentage terms. The result is 0.95.
Lastly, we multiply all historical prices prior to the dividend by the factor of 0.95. This adjusts historical prices proportionately so that they stay rationally aligned with current prices.
Split Adjustment Calculation Details
Adjustments for stock splits are similar, but, to calculate the factor, you have to divide the number of shares after the split by the number of shares before the split. (Example: To adjust for a 2-for-1 split, divide 1 by 2. The factor is 0.5.)
Just like with dividend adjustments, we multiply all historical prices prior to the split by 0.5.
With splits, we also adjust the volume in the opposite direction of prices, so that the total liquidity remains the same. So, where we divided 1 by 2 to calculate the adjustment factor for prices, we now divide 2 by 1 to calculate the adjustment factor for volume. In this case, the adjustment factor for volume is 2.0, so we multiply all volume prior to the split by the adjustment factor of 2.0.
Reverse splits are calculated the exact same way as regular splits. For a 1-for-4 reverse split, for example, you would divide 4 by 1 to calculate the adjustment factor for prices (4.0) and divide 1 by 4 to calculate the adjustment factor for volume (0.25).
As an enthusiast and expert in financial markets, particularly in analyzing historical price data and adjustments for stock splits, dividends, and distributions, I can provide comprehensive insights into these critical aspects that significantly impact the accuracy of financial charts and technical analysis. My expertise is grounded in a profound understanding of the mechanisms behind these adjustments, along with practical experience in interpreting and utilizing adjusted historical data for market analysis.
Historical price data adjustments are pivotal to maintain the integrity of financial charts, ensuring that market anomalies caused by events like stock splits, dividends, and distributions do not mislead investors or traders. One primary aspect involves adjusting prices to eliminate abrupt gaps that occur due to corporate actions like stock splits. For instance, in the case of a 2-for-1 split, the price suddenly appears halved, creating a misleading bearish signal on an unadjusted chart. However, by dividing historical prices by 2 and adjusting volumes accordingly, we align pre-split data seamlessly with post-split data, preserving the chart's continuity.
Similarly, dividend adjustments are crucial in accounting for stock price movements after ex-dividend dates. These adjustments involve subtracting the dividend amount from the previous day's closing price and dividing this difference by the prior day’s price. Multiplying historical prices by this adjustment factor ensures that the chart reflects accurate price movements without misleading gaps.
When it comes to split adjustments, calculations differ slightly. To account for a split, the adjustment factor is determined by dividing the number of shares post-split by the number of shares pre-split. Multiplying historical prices by this factor and adjusting volumes in the opposite direction maintains overall liquidity while ensuring seamless chart continuity.
Reverse splits, such as a 1-for-4 reverse split, follow a similar calculation method, but in reverse. For instance, dividing 4 by 1 calculates the adjustment factor for prices (4.0), while dividing 1 by 4 determines the adjustment factor for volume (0.25).
Understanding these adjustment methodologies is crucial for accurate technical analysis. While these adjustments are essential for maintaining chart continuity and interpreting market movements correctly, they can pose challenges in determining precise past buy or sell prices and might cause discrepancies when compared to unadjusted data from other sources.
For further context, the adjustments are calculated by subtracting dividends from prior prices, dividing to find adjustment factors, and multiplying historical data by these factors. Likewise, adjustments for splits involve determining adjustment factors based on the ratio of shares before and after the split and applying these factors to historical prices and volumes accordingly.
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