Try this to display one image on top of another, and adapt as needed.
% Displays an image and then displays another image over it with a small size.
handleToFigure = figure
% First display the main, large image.
rgbImage = imread('peppers.png'); % Read from disk.
imshow(rgbImage); % Display in axes.
axis('on', 'image');
ax1 = gca; % Store handle to axes 1.
hold on;
% Create smaller axes in top right, and display image in it.
% Store handle to axes 2 in ax2.
ax2 = axes('Position',[.5 .4 .3 .3])
grayImage = imread('cameraman.tif'); % Read from disk.
imshow(grayImage); % Display in axes.
axis('on', 'image');
You could also average the two images to create a blended effect, like this (an example from my code where I overlay a heatmap over an image):
ratio = handles.sldOpacity.Value; % Get the opacity ratio from the slider, for example 0.01
combinedImage = uint8(ratio * double(rgbImage) + (1-ratio) * double(heatMapImage));
imshow(combinedImage)
