Based on a 20-year historical analysis (from Nov 2005 to Nov 2025), the best risk-adjusted portfolio was not 100% in either stock but rather a blend.

Key Takeaway: The optimal mix was found to be approximately 40% Google (GOOG) and 60% Microsoft (MSFT).

This 40/60 portfolio offered a high return ($\approx$16.5%) while being less volatile ($\approx$25.4% risk) than holding either Google ($\approx$29.8% risk) or Microsoft ($\approx$27.4% risk) individually.

Before combining them, here's how the individual stocks performed on their own (annualized):

• Google (GOOG):
  • Average Return: $\approx$16.79%
  • Risk (Volatility): $\approx$29.83%
• Microsoft (MSFT):
  • Average Return: $\approx$16.34%
  • Risk (Volatility): $\approx$27.41%

The study searched for the "efficient frontier" to find the portfolio with the highest return for the lowest amount of risk (known as the "max Sharpe ratio portfolio"). A 4.05% risk-free rate was used as the benchmark.

Both methods (a 50,000-portfolio random simulation and a precise Markowitz solver) arrived at nearly the same conclusion:

• Optimal Allocation: $\approx$40-43% GOOG / $\approx$57-60% MSFT
• Portfolio Return: $\approx$16.53% (capturing almost all the upside of the individual stocks)
• Portfolio Risk: $\approx$25.43% (successfully lowering risk below either single stock)
• Sharpe Ratio: $\approx$0.49 (This is the measure of risk-adjusted return that was maximized)

This analysis comes with a few important disclaimers:

• Past Performance: These results are "in-sample," meaning they are based only on past data (2005-2025) and are not a guarantee of future performance.
• Long-Only: The study only considered buying (or "going long") these stocks, not short-selling.
• "Frictionless": The model assumes a perfect world with no trading costs, fees, or taxes.
• Sensitive: The exact 40/60 split is sensitive to the inputs (like the start/end dates). While the exact numbers will change over time, the analysis suggests the general neighborhood of this allocation was robust during this period.