Why does adding securities beyond a certain threshold $($typically $2530$ stocks$)$ result in diminishing marginal benefits in risk reduction?

Because additional assets inevitably become more correlated, completely erasing any incremental benefit in unsystematic risk reduction.

Because systematic risk dominates total risk once unsystematic risk is largely diversified away, leaving little room for further reduction.

Because each added security increases the portfolio's overall beta, thereby nullifying any diversification gains.

Because transaction costs and management complexities surpass the benefit of reducing standard deviation on a marginal basis.