Does a level 2 subdomain contribute to a subdomain's ranking?, and SEO?

I have a website called x.domain.com, and I need to create another website y. the content of the second website is relative to the first one. Which is better in terms of SEO and website ranking?:

1. y.x.domain.com, will y contribute to x's ranking?, or have it's own separate ranking?
2. x.domain.com/y/

Please help Thanks