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I'm sure it's both, if the story is that they chose Graciella because they couldn't choose between Grace and Ella that doesn't mean it wasn't intended as a variant of Graciela. If they just wanted to make any combo name they could have done Gracella, Ellagrace, Ella-Grace, etc.
I'm also not sure about the parents' explanation because people who like Grace and Ella probably prefer short first names in general and I think it's unlikely that they'd settle on a long name as a compromise.