Which of the following determines the average return and its standard deviation from future data as a method of measuring risk?

The concept of measuring risk through the determination of the average return and the standard deviation from future data is best captured by risk measurement. This method involves quantifying the potential variability of returns, which allows investors to understand the likelihood and extent of variations from expected performance.

In risk measurement, analysts use historical data as well as statistical models to calculate these averages and standard deviations. This approach helps gauge potential losses or gains over a specified period, providing a clearer picture of the investment's volatility. Understanding both the average return—representing the expected performance—and the standard deviation—indicating the level of risk or volatility—enables investors to make informed decisions regarding their portfolios.

While market assessment, performance forecasting, and diversification analysis are all vital components of investment strategy, they do not primarily focus on providing a systematic approach to calculating average returns and risks through standard deviation in the same way that risk measurement does. Therefore, the process of risk measurement is specifically geared towards evaluating and quantifying financial uncertainty, making it the most relevant choice for this context.