Help me understand the new Arena rating system

I've been playing my rogue with a mage for 2s. My gear is pretty bad, boes and blue pvp gear. He has stacked raid gear and hateful pieces. After playing with a friend for some games he re-joined the team at 1580 and my pr was the same. We went 5-6 against some oddly good teams, going down to 1560. We were playing against rogues with 3400ap and 750 res, it was crazy. My pr went UP to 1600 and his went down to 1490. There were odd games when we would lose 17 points and the other team would gain 5. I am pretty confused at this point. It seems like rating changes and pairings are completely dependent on how much gear you have. Do I need to go find someone else with crappy gear to avoid stacked teams?

Blizzard now has a hidden personal rating which never changes no matter how many teams you leave/join, attached to each character. Team matchings and point win/losses are based off that now, using a formula Blizzard hasn't talked about. So in essence if a person with a previously higher rating joins you, probably you both will average out to a "higher" hidden rating, meaning you will match up with better teams, and when you win you will get more PR but he will get less. Its kind of setup to balance out after a lot of games, but if people play together only a few games its going to look very weird (as you saw).

I do not believe its based on gear at all, but of course it'd be easy to test -- both of you get naked, put gear in bank, join a game and see how much your ratings change.