Actually its more of a contraction of the two words, hill and billy. See below.
Scholars argue that the term "hillbilly" originated from Scottish dialect. The term "hill-folk" referred to people who preferred isolation from the greater society, and "billy" meant "comrade" or "companion". It is suggested that "hill-folk" and "billie" were combined when the
Cameronians fled to the hills of southern Scotland.
[7] There is also the belief that most of the settlers from Scotland and northern Ireland were followers of king William of Orange. 'Billy' is a diminutive of 'William' common across the British isles. For the people who settle in America in the hills and who were Williamites, the term hillbilly connects both people who live in the hills and who are supporters of king William of Orange's ideologies.