Welcome! What you are seeing is what is known as redirected aggression. Your cat sees the other cat outside and what's to chase it out of her territory. Since she can't get to it, she is taking out her frustration on her sister.
Do a search on this forum for 'redirected aggression' and you'll find some info, also Google it.
The only way to fix this is to eliminate the cat from coming on your property. If you know the owner, I would start there. If you think it's a stray, then trap it and bring it to a shelter/rescue. I had this problem with my neighbor's cat, my cats actually got into a fight and both of them ended up with abscesses (and a $500 vet bill) and I had to speak to them twice before they finally kept the cat in.
Once you eliminate the source of the problem you will need to work on a re-introduction process for your kitties.
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Holly, Misty & their friend, Jake, the dog.
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