Tor hides your location from destination servers, but it does not encrypt <i>all</i> your communication. The last relay of a Tor circuit, called the <i>exit node</i>, establishes the actual connection to the destination server. This last step can be unencrypted, for example, if you connect to a website using HTTP instead of HTTPS.
Observe your traffic. That is why <i>TorBrowser</i>andTails include tools to encrypt the connection between the exit node and the destination server, whenever possible.
End-to-end correlation attacks have been studied in research papers, but we don't know of any actual use to deanonymize Tor users. For an example, see <a href="https://www.freehaven.net/anonbib/cache/murdoch-pet2007.pdf">Murdoch and Zieliński: Sampled Traffic Analysis by Internet-Exchange-Level Adversaries</a>.