To evaluate the risk of an investment, you can look at the historical volatility of the asset. For example, if you invest in a stock that over the past 10 years has fluctuated in price from $50 to $150, that stock is considered more volatile and thus riskier than a stock that has stayed within a $10 range. You can calculate the annualized standard deviation of the stock's returns to measure its volatility. If Stock A has a standard deviation of 15%, while Stock B has a standard deviation of 5%, then Stock A carries more risk. Knowing how much risk you're comfortable with is essential for making informed investment choices.

Volatility refers to the degree of variation of a trading price series over time. It is often measured by the standard deviation of returns, indicating how much an asset's price can vary from its average price. High volatility means the price can change dramatically in a short time in either direction, representing higher risk.