The heterochromatin protein 1 (HP1) family is a crucial component of heterochromatin with diverse functions in gene regulation, cell cycle control, and cell differentiation. In humans, there are three paralogs, HP1α, HP1β, and HP1γ, which exhibit remarkable similarities in their domain architecture and sequence properties. Nevertheless, these paralogs display distinct behaviors in liquid-liquid phase separation (LLPS), a process linked to heterochromatin formation. Here, we employ a coarse-grained simulation framework to uncover the sequence features responsible for the observed differences in LLPS. We highlight the significance of the net charge and charge patterning along the sequence in governing paralog LLPS propensities. We also show that both highly conserved folded and less-conserved disordered domains contribute to the observed differences. Furthermore, we explore the potential co-localization of different HP1 paralogs in multicomponent assemblies and the impact of DNA on this process. Importantly, our study reveals that DNA can significantly reshape the stability of a minimal condensate formed by HP1 paralogs due to competitive interactions of HP1α with HP1β and HP1γ versus DNA. In conclusion, our work highlights the physicochemical nature of interactions that govern the distinct phase-separation behaviors of HP1 paralogs and provides a molecular framework for understanding their role in chromatin organization.