What Is Pearson correlation?
Pearson correlation, also called the Pearson product-moment correlation coefficient or Pearson’s r, measures the strength and direction of a linear relationship between two variables. It is their covariance divided by the product of their standard deviations, and ranges from -1 to 1. A value of +1 or -1 indicates a perfect positive or negative linear relationship; a value near zero indicates no linear relationship.
Pearson correlation is invariant to changes of scale and location, but it can be strongly affected by outliers and can miss a non-linear relationship. It is the usual form of an information coefficient (IC) when raw model predictions are correlated with realised returns.
Research and literature
Rodgers and W. A. Nicewander, Thirteen Ways to Look at the Correlation Coefficient, The American Statistician 42(1), 1988.