Here is the latest test. Getting to understand cause effect a little better.
The improvements: 1- I rewired the arduino board and the sensor with better and lighter stuff. 2- I adjusted the focal length of the sensor lens. Before it was at the shortest level which I think caused problem as the unit climbed higher. 3- I increased the sensor sensitivity range that I adjust with the 5th channel towards the more sensitive side. I wanted to find the sensitivity limit where the unit over compensates and starts oscillating.
First couple of tries the sensor did nothing and the unit drifted. So, I reduced the focal length, to be around 1/3rd of the full range. Then the unit responded really well. You can see the unit oscillating, caused by overcompensating at the beginning. Then it stabilized as I reduced sensitivity. After this I took it higher and it kept the position without drifting. Having a little wind really helped to feel the response of the unit. Now it’s time to go higher and see what it does.