Am I correct in assuming that if Cargo Hold is claimed and an upgrade that specifies "Yellow Character only" is moved to an opponents non yellow character that the upgrade is discarded?

No play restrictions like “yellow character only” only matter when you play the card not when you are moving the upgrade in play. The upgrade would move to the other character and if the die is in the pool it would return to the card.

Thanks, good to know

It works best just before you kill a character you claim and move an upgrade on to him. That way you get to activate first and kill him with one of the better upgrades on him. Killing two birds with one stone in a manner of speaking.

Or moving a good upgrade off your own character that is going to die early next round.

Or moving a force illusion from your healthy character to the character your opponent us trying to focus down.

etc