The Half Pair/Unilateral Pairs Trading concept, described in James Altucher's book 'Trade Like A Hedge Fund', has a lot of potential. The basic idea is to find highly correlated pairs of stocks that could be used in a pairs trade, but only trade the more volatile stock of the pair. The stock is traded when the ratio of the two stocks of the pair reaches an extreme.
The first plot above shows the results for trading IWM based on the IWM/SPY ratio. The equity curve has much less adversity than just buying and holding IWM. The second plot shows the results for trading KLAC based on the KLAC/NVLS ratio. The increased volatility of individual stocks verses ETFs makes for increased potential profits. However, note that nothing much has happened with the KLAC/NVLS pair for the last several years. To harness this trading approach, it will be necessary to find a sufficient number of highly correlated pairs that are currently volatile enough to examine further. The approach also would seem to be relatively insensitive to overall market direction.
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