What Is the Primary Risk When Combining Two Financial Derivatives in a Structured Product?

The primary risk is the complexity and opacity of the combined product, often referred to as model risk or correlation risk. The payoff is dependent on the interaction of multiple underlying factors, and if the assumed correlation between these factors breaks down (e.g. during a market crisis), the product's performance can diverge wildly from expectations.

This lack of transparency makes risk assessment difficult.

What Is the Difference between Rational and Psychological Factors in Options Pricing?
How Does a Reduction in Margin Due to Cross-Margining Affect a CCP’s Overall Risk Exposure?
How Does the Correlation between Collateral and the Underlying Derivative Affect the Haircut?
How Does the Correlation between Assets Affect Portfolio Margin?
How Does the Correlation between Assets Affect the Effectiveness of Cross-Margining?
What Is the Impact of a High Correlation Assumption on Cross-Margining Benefits?
Does Basis Risk Increase or Decrease with the Correlation between the Derivative and Its Underlying Asset?
In Traditional Finance, What Is an Analogous Concept to Combining Two Distinct Security Mechanisms?