Wes Craven chose to make Freddy Krueger's sweater colors red and green after reading that they were the two most clashing colors to the human retina!

Nightmare on Elm Street is said to be inspired by a series of newspaper articles in the LA Times in the 1970s about some Khmer refugees who fled to the U.S. from Cambodia and the Khmer Rouge Genocide. Men between the ages of 19-57 were suffering from disturbing nightmares that ended in the death of several. It became a phenomenon known as Asian Death Syndrome or Brugada Syndrome. 

Craven drew from these stories for his plot. At first, Krueger was going to be a child molester, but eventually it got switched child murderer after several molestation cases came up in California around the time of production. Fred Krueger was chosen as the villain’s name, because Craven’s childhood bully was named Fred Krueger. 

His sweater was red and green stripes, because he read an article in Scientific American in 1982 that said the two most clashing colors to the human retina were red and green. He also based the sweater off of the DC Comics character Plastic Man. 

(Source)