Technically, 水色 appears in both Japanese and Japanese-English dictionaries, so I'd say it's a word by any reasonable definition. (Disclaimer: not a native speaker.)
It's a word in its own right - but the etymology of it is still important and I feel it was slightly misrepresented.
For example, the greeting many people know 「こんにちは」 (konnichiwa) is a word in its own right nowadays, but is really just the beginning of an older greeting: 今日は御機嫌いかがですか
