Depends on what are you planning to place in this component.

If text only, then java.awt.Label will make the trick.

In more general case, extend java.awt.Canvas
Here you place everything you want, from pictures up to your own
interface elements.
Extra benefit is that Canvas has its own graphic context (Graphics), so
you can update it independently from the application's context.

NB: The AWT containers have no "transparency" property (at least nothing
that would work anyhow reliable). Just use the same background color for
the top and bottom layers.

Thanks for your help but this is not sufficient.
There is going to be nothing put onto the component, it is simply created to
respond to the mouse entering and leaving it (there might be a better way
to do this). A transparent component is required as there is a complicated
image below it.

Thanks
Connell