hmm, well, that is a good rule of thumb, but one can get quite creative with setting up tarps (and even hammocks, thought that's less common/trivial). for instance, it depends a lot how you setup the tarp, a-frame, or diamond, or some other combination. the ridgeline usually goes between the same two trees, but it doesn't have to, etc.
having said that, fitting a smaller tarp to a larger hammock is usually tricky, you might be stuck with some type of diamond setup if the tarp is really small. so i guess it comes down to: decide the hammock length first, based on your needs, a longer hammock tends to be more confortable, but if your pack weight/bulk matters, and a new tarp is not planned yet, perhaps taking into account where diminishing returns start being abysmal is worth it: mainly, depending on the height of the hammocker (mainly, but not only), different lengths of hammocks are "bare minimum" for comfort. best is to try, if you can borrow a longer hammock, or experiment with some long fabric without sewing it or even cutting it (you can use sheet bends at the gathered ends, and test several lengths this way without cutting or sewing). i've done this many times, but i have to warn you: it might be that you will like the absurdly long hang too much (it can be fixed later, with some discipline) :P
edit: the other slightly dangerous slippery slope, once you play with this, is that you find you can easily have a longer hammock, and for cramped hangs or such, there's always the option to shorten it with a sheet bend, and this way you still have a longer confy hammock for most other hangs where you have space and no rain in the forecast
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