Discussion
The Fisher transformation is an approximate variance-stabilizing transformation for r when X and Y follow a bivariate normal distribution. This means that the variance of z is approximately constant for all values of the population correlation coefficient ρ. Without the Fisher transformation, the variance of r grows smaller as |ρ| gets closer to 1. Since the Fisher transformation is approximately the identity function when |r| < 1/2, it is sometimes useful to remember that the variance of r is well approximated by 1/N as long as |ρ| is not too large and N is not too small. This is related to the fact that the asymptotic variance of r is 1 for bivariate normal data.
The behavior of this transform has been extensively studied since Fisher introduced it in 1915. Fisher himself found the exact distribution of z for data from a bivariate normal distribution in 1921; Gayen, 1951 determined the exact distribution of z for data from a bivariate Type A Edgeworth distribution. Hotelling in 1953 calculated the Taylor series expressions for the moments of z and several related statistics and Hawkins in 1989 discovered the asymptotic distribution of z for virtually any data.
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