If it is moving that much, turn down the heat. The covering should adhere at a lower temp than the shrink temp. Once it is all locked down, then increase the heat to shrink it. Or better yet, shrink it with a heat gun.

Yes, in this case you would have no problem putting the yellow over the red. Where you want to avoid this is where colors meet. For example, in the picture above, if the blue is on top of the yellow, there's no problem, but if the yellow was on top of the blue, the blue would show slightly through the yellow where they overlap. Sometimes this is unavoidable, but avoid it if you can.