I think this is a really cute nickname! I think Penelope could be a good formal name for Pepper. It makes me think of the children’s book The Five Little Peppers.Also- I never really thought about it until recently but Pepper could actually be a really cute name for a boy, at least for a character and or as a nickname (maybe a nickname for Peter?). I can just imagine a little freckled, red head boy named Pepper, so cute!
Dr. Pepper Schwartz is a well-known sociologist who is an expert on sexuality. She was born Judith Schwartz but adopted "Pepper" as a teenager to differentiate herself from two other girls called Judith Schwartz in her high school. Her brother suggested "Pepper" to her. https://pepperschwartz.com/about