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Effective PA is dependent on the correct description of the investment process. I am not sure, from what you say, what exactly is your investment process. But let me presume that it is the following: You have chosen the S&P500 as your benchmark. You first distributed your money among sectors. (That you gave many sectors zero weight is not relevant to the ...


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You actually need to consider a 0 return on the periods with no holdings (during that period volatility is 0 and you have a negative return due to the opportunity cost of not holding risk free debt). From that you can compute your daily sharpe ratio and then multiply by $252^{0.5}$ as you mention.



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