In this paper, we study a half-duplex two-way relay channel (TWRC) with correlated sources exchanging bidirectional information. In the case, when both sources have the knowledge of correlation statistics, a source compression with physical-layer network coding (SCPNC) scheme is proposed to perform the distributed compression at each source node. When only the relay has the knowledge of correlation statistics, we propose a relay compression with physical-layer network coding (RCPNC) scheme to compress the bidirectional messages at the relay. The closed-form block error rate (BLER) expressions of both schemes are derived and verified through simulations. It is shown that the proposed schemes achieve considerable improvements in both error performance and throughput compared with the conventional non-compression scheme in correlated two-way relay networks (CTWRNs).