Sancho is, of course, a real name, deriving ultimately from the Latin for 'sacred' (perhaps most famously belonging to Sancho Panza, the faithful and long-suffering companion of Don Quixote). That derivation does not seem to fit a Hobbit of the Shire particularly well, and so Sancho's name was perhaps chosen simply because it fit the pattern of his ancestors Olo, Odo, Bodo and so on. Indeed, it may actually have been the name used in the Shire (though more likely in the form Sancha) and, if so, the resemblance to the modern name Sancho would be no more than coincidence.
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