You are correct, blood dilutes yellow, cause of the blood plasma assumedly.
On the blood diluted in water is yellow, I believe you were thinking of what happens when you seperate diluted blood into its component. By the way the old ask-blog used to have an easy way to send pictures, but they new one doesn’t otherwise i’d have included an illustration, but if you google image search for “blood separation diluted in water” one should show up.

Ah, I see, so it’d need a little more processing, then, to turn yellow? Fair enough.