Translation:My older sister has green hair.
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It has nothing to do with formality, but I think 绿色的头发 is actually preferred to 绿头发. As 的 is more likely omitted when there is a higher degree of integration between the attributive and the noun, it is common to see 黑头发, 白头发, 金头发, 红头发, etc. Green being not a natural hair color of human, it is not likely that we would say 绿头发 instead of 绿色的头发.