That diode will be fine. It needs to have a Peak Reverse Voltage rating above the relay's coil voltage, and a Forward Current rating greater than the coil current.
In order to drive the relay directly from the Arduino, the relay coil voltage should be 5V (a 12V coil won't work) and the activation current (coil current) needs to be 40mA or less.
FYI - You don't need a microcontroller or programming if all you want to do is turn on/off an alarm based on the CO level. 
Assuming the CO sensor has an analog output, you can use an op-amp as a [u]comparator[/u] and the same sort of driver/relay for the alarm.