The group-additive decomposition of the unfolding free energy of a protein in an osmolyte solution relative to that in water poses a fundamental paradox: whereas the decomposition describes the experimental results rather well, theory suggests that a group-additive decomposition of free energies is, in general, not valid. In a step toward resolving this paradox, here we study the peptide-group transfer free energy. We calculate the vacuum-to-solvent (solvation) free energies of (Gly)n and cyclic diglycine (cGG) and analyze the data according to experimental protocol. The solvation free energies of (Gly)n are linear in n, suggesting group additivity. However, the slope interpreted as the free energy of a peptide unit differs from that for cGG scaled by a factor of half, emphasizing the context dependence of solvation. However, the water-to-osmolyte transfer free energies of the peptide unit are relatively independent of the peptide model, as observed experimentally. To understand these observations, a way to assess the contribution to the solvation free energy of solvent-mediated correlation between distinct groups is developed. We show that linearity of solvation free energy with n is a consequence of uniformity of the correlation contributions, with apparent group-additive behavior in the water-to-osmolyte transfer arising due to their cancellation. Implications for inferring molecular mechanisms of solvent effects on protein stability on the basis of the group-additive transfer model are suggested. © 2013 Biophysical Society.