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I would like to calculate two stocks correlation for a specific time range. I am simply taking a daily returns of both stocks and then applying correlation function.

Should I use "Close" price or "Adjusted Close" price to get a daily return? I understand the meaning of "Adjusted Close", however I get quite different results on a different pair of stocks.

For example for a pair GLD - AAPL using "Open" and "Close" prices between 2019-04 and 2020-04 I get -0.240. Using "Open" and "Adjusted Close" for the same period I get -0.247.

However, for some other stocks results are completely different. E.g. DANSKE.CO and RBREW.CO using "Close" and "Open" I get 0.008, but using "Adjusted Close" I get 0.192.

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  • As @D Stanley stated in his answer, If you just use the close, then any corporate actions (splits, dividends, buybacks) would be reported as returns which would throw off your correlation calculations. Run your calculations side by side (one on the close and the other on the adjusted close). They will diverge whenever there is a corporate action. Commented Apr 28, 2020 at 18:11

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You should use Adjusted Close. If you know the meaning of Adjusted Close then it should be obvious why. If you just use the close, then any corporate actions (splits, dividends, buybacks) would be reported as returns which would throw off your correlation calculations.

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