Basically my question comes from two parts. In simple definitions of LR, we consider X to be a known constant. Thus $$var(Y) = Var(b_0+ b_1x + e) = Var(e)$$. Great.
However, a great deal of linear regression has to do with Cov(X,Y). This is used to estimate our parameters, and it assumes that X is a random variable.
How do we distinguish between these two schools of thought?
I'm ultimately trying to show that sample correlation between X and Y for simple linear regression is an unbiased estimator of true correlation between X and Y. Does this question even make sense, given that sample correlation of $$Corr(X,\hat Y) = Corr(X, b_0 + b_1 X) = Corr(X, b_1 X)=1$$ always? But even if this doesn't make sense, aren't we still able to make claims in linear regression about the correlation between X and Y because $$E[b_1] = E[\beta_1] \\ b_1 = r\frac{\sigma_y}{\sigma_x}$$
Covariance is defined as $$Cov(X,Y) = \mathbb{E}(XY) - \mathbb{E}(X)\mathbb{E}(Y)$$
If $Y = a + bX + \varepsilon$, then:
$$Cov(X,Y) = \mathbb{E}((a + bX + \varepsilon)X) - \mathbb{E}(a + bX + \varepsilon)\mathbb{E}(X)$$ $$Cov(X,Y) = a\mathbb{E}(X) + b\mathbb{E}(X^2) + \mathbb{E}(X \varepsilon) - a\mathbb{E}(X) - b\mathbb{E}(X)^2 - \mathbb{E}(\varepsilon)\mathbb{E}(X)$$
Since $a\mathbb{E}(X)$ drops out and $\varepsilon$ is assumed to be independent of $X$ we have $\mathbb{E}(\varepsilon)\mathbb{E}(X) = \mathbb{E}(\varepsilon X)$.
Therefore: $$Cov(X,Y) = b(\mathbb{E}(X^2) - \mathbb{E}(X)^2) = b \sigma_X^2$$
Since $X$ and $\varepsilon$ are independent, we find $\sigma_Y = \sqrt{b^2 \sigma_X^2 + \sigma_\varepsilon^2}$.
So the correlation coefficient is: $$Corr(X,Y) = Cov(X,Y)/(\sigma_X \sigma_Y) = \frac{b \sigma_X^2}{\sqrt{b^2 \sigma_X^2 + \varepsilon^2} \cdot \sigma_X} = \sqrt{\frac{b^2 \sigma_X^2}{b^2 \sigma_X^2 + \varepsilon^2}}$$
So the correlation is kinda dependent on the ratio between the explained and the unexplained behaviour.
I'm not sure whether linear regression always optimizes to an $a, b$ and $\varepsilon$ such that $Corr(X,Y_{pred}) = Corr(X,Y_{real})$ though.